Discount computer upgrade

While retail cycles in many industries have become markedly shorter, the computer superstore shakeout has set records. From a standing start four years ago, the industry has, for all intents and purposes, narrowed down to two major players: CompUSA and Tandy's Computer City. [TABULAR DATA OMITTED]

Computer City, with 22 locations as of early June, is a two-year-old start-up that is projected to top the $1 billion mark next year. CompUSA, which began life as Soft Warehouse, is on track to easily surpass that mark this year. While the two have battled head-to-head in several markets, it's the local superstores and resellers that have lost most heavily.

CompUSA, with about 50 locations nationwide, is already profitable, and Computer City, which doesn't break out numbers from parent Tandy's results, is reportedly profitable at the store level. As more and more of their smaller rivals drop out of the marketplace, their profitability is almost certain to soar.

According to Computer City president Alan Bush, his stores that go head-to-head with CompUSA are among his top performers. But the two must be aware of the entire universe of retailers in this category. Warehouse clubs, consumer electronics and office superstores, and full-line discounters like Kmart and Wal-Mart, are all aggressively going after the computer business.

Computer City has reacted to the spreading competition by introducing a scaled down version called Computer City Express, which can be dropped into small markets or used to supplement full-size stores in existing large markets. CompUSA, on the other hand, has stuck to its superstore concept successfully.

Since the industry is just moving out of its infancy, computer superstores have had to experiment with the category. CompUSA, for instance, tested Sega and Nintendo products before deciding to stick to pure computing products. The company is now adding additional multimedia products, DIY upgrade materials like additional memory, and a deeper selection of software and computer-related magazines.

Computer City also expanded its multimedia offerings, and is looking at expanded furniture merchandise.

On the surface, the two chains look pretty much the same. Each operates stores of about 25,000 sq. ft., with warehouse racking, florescent lighting, and relatively intensive floor-level service. Each says that about 40% of its business comes from corporate, governmental and educational sales, the bulk coming from consumers. And each markets roughly the same mix of brands: IBM (new at CompUSA), Apple, and top clones like Dell at CompUSA and AST at Computer City, along with premium private label products; Compudyne at CompUSA, Victor and U.S. Logic at Computer City.

Competitors report, however, that CompUSA is a much tougher marketer; Computer City tends to rely more on its selection and advertising to draw customers while CompUSA is almost predatory in its pricing. It has certainly been much more aggressive in its expansion, racing to establish a national presence in top U.S. markets, then backfilling as needed. Computer City has been slower to move into new markets, preferring to develop key markets extensively before moving on.