Dueling Fools
Borne in the CompUSA
August 18, 1999
The Bear Rebuttal
By
I think I should thank my fellow Fool for writing a case against CompUSA that was almost more bearish than my initial argument! Many of the salient cautionary points were there: the crumbling selling prices of computers, the online competition, and the frightening customer service. Where we part ways is in expecting a turnaround. To be concise, I'm not holding my breath.
Louis first brings up the point that ISP subsidies may actually reverse, or at least stall, the falling prices seen in PCs. It may be true that a rising tide raises all ships, but CompUSA is a vessel that has more than a few holes. Even if average PC prices do manage to climb (don't hold your breath there, either), CompUSA is still at a major disadvantage to its online peers. Furthermore, there is little preventing the ISPs from choosing to distribute the free PCs themselves while scrubbing the refund checks altogether.
Louis then points to CompUSA's direct sales outsourcing as a bright spot. Perhaps my eyesight is just getting worse, but I don't see a reason why a computer buyer wouldn't go directly through Ingram, bypassing CompUSA altogether. Like I said, CompUSA is nothing more than a middleman in an era where middlemen are going the way of the buggy whip.
I was also glad to see that my less-than-pleasing experience as a customer was not an isolated incident. Louis points to the company beefing up its employee training while populating its floors with salesmen as a way to improve its stores. This may help CompUSA's slightly tarnished reputation as a service organization, but it's not going to come cheap. In other words, I see CompUSA's already disadvantaged cost structure getting that much more disadvantaged.
Louis then points to CompUSA's product diversification for potential salvation. Will consumers really think first about CompUSA when looking to purchase a stereo? Here again the "ToasterUSA" name might actually work just as well as its current moniker.
Additionally, I find the adjusted book value of $3 per share to be an unstable estimated floor beneath the stock. I have a feeling that the company's current downsizing charges and write-offs won't be the last to hit the company's income statements. Remember all those fundamental refocusing efforts Louis talked about? Those all cost $$$. Besides, there would be numerous other expenses before the proceeds of the liquidated company could arrive in its shareholders' pockets.
Perhaps Louis is right and CompUSA is in the midst of a massive turnaround. Even if this tanker does start to turn, I still see those holes waiting to sink the ship. Namely, I spy the e-commerce competition, the rapidly aging inventory, the ever-falling computer prices, and the high cost structure of its bricks and mortar stores. Forgive me if I take a pass on CompUSA and look for a more fundamentally sound ship to board.
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