Sunday, December 9, 2007

Not all billionaire decisions are smart ones

Even the world’s richest man can make mistakes — and not just Bill Gates.

CompUSA is being liquidated. America’s only major national computer chain was founded in 1984, and under CEO Nathan Morton grew to hundreds of stores and billions in annual revenue. But Morton died in 2005, and its new owner — Mexico’s Carlos Slim failed in his dubious attempt at buying cheap distressed properties. The company hasn’t turned a profit since 2005.

Some say that CompUSA is failing in competition with major big box electronics retailers. Perhaps that is part of it — that there’s a big convergence of markets and the idea of pure computer retailers may have gone away. There’s also the direct sales competition from Apple, Dell and HP. No one mentions it, but retail computer margins are slim and inventory costs (particularly when products become obsolete) can be brutal.

But frankly, I don’t think CompUSA was a very good computer store. For utterly routine things, the office stores (Office Depot, Office Max, Staples) do a fine job, and they’re more convenient located. For advanced things, the CompUSA workers never knew as much as the Apple store employees, or the independent computer dealers who still survive in little pockets here and there. So if they had actually been good at selling computers, they might be around.

Slim made his billions running monopoly telecommunications in a less developed country with limited domestic competition. Free markets can be tough, so perhaps Mr. Slim needs to find and trust top managers with experience coping with real competition.

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