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Subject: Executive Update
Date: Thu, 29 Oct 92 13:13:30 EST
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10/29/92

TITLE Executive Update

Superstores Vie To Be Seen By Computer Buyers

Players Racing To Open Outlets And Gain 'First-To-Market Advan-
tage' Sean Silverthorne In Mountain View, Calif.

On the great chess board of computer retailing, Nathan Morton and
Alan Bush - the kings of computer "superstores" - are moving
pieces so rapidly it would make Bobby Fischer and Boris Spassky
dizzy.  Morton is chief executive of Dallas-based CompUSA Inc.,
the nation's largest computer superstore. Bush is president of
Morton's chief rival, Strategy

ComputerCity Supercenter, a unit of Tandy Corp. of Fort Worth,
Texas.

Across the country, Morton and Bush are opening warehouse-format
stores at a rate of one a month, aggressively bidding to be in
the forefront of a new way of selling computer equipment.  "We
think it is important to have first-in-market advantage because,
since it is a new concept, the customer identifies it with the
first operator to come into the market," said Morton, a former
executive with a superstore of another type, Home Depot Inc. "It
will be harder to unseat us." Last week#m# (Oct. 24)#m#, Morton
christened a CompUSA in Cincinnati, and another will be open this
week near Boston.  Bush has been no slacker. In September, he
dedicated a ComputerCity Supercenter in Tampa, Fla., and ribbons
will be snipped next month on outlets in St. Louis and Las Vegas.
By the end of the year, ComputerCity will have opened some 20
stores in just 18 months, and rollout plans call for 12 stores a
year for the foreseeable future.  "We've got 32 stores now, and
we intend to have 48 by next June," said CompUSA's Morton.  Joked
Bush, "I'm just following Nathan around." Smaller superstore
players including MicroCenter Inc. of Columbus, Ohio, and Fry's
Electronics Inc. of Palo Alto, Calif., are also populating the
landscape with stores, although regionally rather than national-
ly.

ComputerLand Superstores

ComputerLand Corp., the largest U.S. computer retailer, is test-
ing the superstore format with an Atlanta store and will open two
or three more next year. A major expansion could come in 1994,
executives of the Pleasanton, Calif.-based chain say.  By some
estimates, superstore industry revenue will hit about $3 billion
this year and double to $6 billion in 1995. By then, about 20% of
computer equipment bought in the U.S. will be through super-
stores, predicts market researcher Dataquest Inc.  "We are pretty
much convinced it is a successful format," said William Graves,
vice president of marketing of ComputerLand. "We see . . . the
whole world of selling computers in change." Excitement over com-
puter retailing had not been expected. In fact, pundits had dif-
ficulty finding a pulse in the market after once- healthy firms
like Businessland Inc. and Computer Factory Inc. hit hard times.
To turn things around, the industry couldn't help but notice
superstore success stories in other industries, led by Co.'s
Price Club unit, Costco Wholesale Corp., Toys "R" Us Inc., Cir-
cuit City Stores Inc., Office Depot Inc. and Home Depot.  The
concept: Sell in high volume while keeping operating margins
razor-thin.  The average computer emporium sprawls over 25,000
square feet and stocks 5,000 items ranging from PCs to software
to printer ribbons.  Gauging the financial health of computer
superstore players is difficult since only CompUSA is publicly
traded. Following several years of spotty performance, Morton's
company seemed to turn the corner in the fiscal year ended June
30. Earnings came in at 69 cents a share, compared with a loss of
$1.58 the previous year. Sales climbed 52% to $827.1 million.  In
the fiscal first quarter ended Sept. 26, CompUSA's sales advanced
56% to $263.4 million. Earnings won't be reported until mid-
November.  ComputerCity's Bush says only that his chain is pro-
fitable on a store operations level.

Tech- Wise Buyers Attracted

A PC price war and aggressive new products from leading vendors
have helped perk up computer sales this year. But another reason
for the apparent success of computer superstores is today's
tech-wise buyer.  The no-frills format attracts a smart consumer
who does not need a lot of handholding, a person who demands im-
mediate availability and low prices.  "It's a surprise to us who
have been in the business to see people in neckties and white
shirts loading up grocery carts full of network boards and math
co-processors," said Graves of ComputerLand. "They are quite com-
fortable . . . with the technology." Said industry analyst and
consultant Seymour Merrin: "In the '80s, it was a technology-
driven business. In the '90s it is a marketing-driven business."

Denny Lane, director of desktop marketing for computer maker NEC
Corp., says NCR is negotiating to put the company's new Ready PC
line into CompUSA.

"I'm seeing more and more . . . end users going through these
stores as PCs become more commodity-oriented," said Lane. "It's
just an easier venue to go in and buy the products." Can anything
derail the superstore train? Plenty.  For one thing, the competi-
tion to sell PC equipment is increasing. Office equipment sup-
pliers like BizMart Inc. and Office Depot are jumping into the
computer business with both feet. So are consumer electronics
chains such as Circuit City and Tandy's new megastore, Incredible
Universe.  Even computer makers are going into competition with
retailers, noted Lise#m#cq#m# Buyer, a vice president at T. Rowe
Price Associates Inc. International Business Machines Corp., Com-
paq Computer Corp. and Apple Computer Inc. have or soon will have
direct sales to end users.


High Barriers To Entry

Meanwhile, International Data Corp. analysts believe the nation
will only support 100 superstores or so - a number likely to be
reached in the next several years.  But there are also several
things working in the format's favor, analysts say, such as high
barriers to entry for new players.  "This is not a 4% or 5% (net)
margin business, it's a 1% margin business," said Buyer of T.
Rowe Price. "It's . . . more like a supermarket." "It's a very
complex, very tough business," said analyst Merrin. "Those guys
that don't have all their ducks in a row are not going to sur-
vive." CompUSA's Morton doesn't act worried. Most competitors
will never be able to offer the one-stop shopping convenience of
a superstore, he says.  "We know that we are not going to sell
every computer in the United States," he said. "But that PC buyer
is eventually going to want a bigger selection of software, he's
going to want somebody intelligent to talk to, his computer is
going to break on a Sunday at 2 o'clock and he's going to want to
get it fixed." That's when CompUSA may get a new customer. Said
Morton: "We're there in all those situations."

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