Attack Of The Giant Discounters

When computer superstore Comp USA held a grand opening last December at its new outlet in Santa Clara, Calif., more than 1,000 people turned up. "There were lines out the door," boasts Chief Executive Nathan Morton.

Even in the heart of Silicon Valley, superstores such as those run by Comp USA and rivals such as CompuAdd are a hot new phenomenon. The warehouse-style outlets cram some 5,000 products--PCs, printers, software packages, even extension cords--into 30,000 square feet of space. And they're priced as much as 80% below list. Prices are so good that some dealers treat superstores as wholesalers. "You can get almost anything there, and at good prices," says Sheryl Rich, a computer dealer who stocks her fledgling shop with items from a Comp USA located some 150 miles from her home in Corsicana, Tex.

Lots of people are going out of their way to shop in superstores. Last year, some 35 computer superstores sold more than $1 billion worth of PC gear. By the end of 1992, the number of such outlets will explode to 135, and their sales are expected to top $5 billion (chart). "Superstores are going to be a fixture in the PC business," says Robert Puette, president of Apple Computer Inc.'s U. S. division.

Already a fixture in some 14 U. S. cities, Comp USA is the country's biggest superstore chain. The privately held, 17-store company expects sales to hit $600 million this year and has three more locations in the works. Founded seven years ago as Soft Warehouse to sell discount software, it switched to the superstore concept in 1988. Last year, it got a big boost when Dell Computer Corp., a top seller of mail-order PCs, tapped Comp USA to be its first retail distributor.

So far, Comp USA has succeeded without the big three PC makers: IBM, Apple, and Compaq. "We were founded as an alternative to the Big Three," says Morton, 42, who joined the company in 1989, after 21 years in discount retailing.

That could soon change. Apple quietly has been allowing existing dealers that open superstores to stock its products. And analysts expect the company to broaden authorization to other chains--including Comp USA--by yearend. Already, Micro Electronics Inc. in Columbus, Ohio, which pioneered the PC superstore concept in the mid-1980s, sells the three major brands in its Micro Center outlets.

SLIM MARGINS. Like any discounter, a superstore thrives on high volume, low overhead, and quick turnover. "If something doesn't sell within 20 to 30 days, we discontinue it," says Morton. Indeed, there's even less margin for error--or profit--than in traditional computer retailing. "The stores have to be managed superbly 100% of the time. There's no room for piddling around," says consultant Seymour Merrin of Merrin Information Services Inc.

There's nothing piddling about superstore growth. No longer catering just to small businesses and home PC customers, they're attracting big-business buyers, too. Comp USA says about 35% of its sales are made to corporate buyers, often through its new direct sales force. Morton says he'll boost that to 50% through support services, including in-store technicians and an 800 line for customers. Also on his 1991 agenda: an initial public offering.

There is a risk, however, that the superstore concept could turn into too much of a good thing. "You can't have a superstore in every city," says Lise J. Buyer, an analyst for Cowen & Co. in New York. "In Little Rock, Buffalo, Rochester, I'm not sure they're going to work." But in Dallas, Columbus, and Atlanta, they're doing just fine.

Before it's here, it's on the Bloomberg Terminal.