CompUSA's bold retail experiment

McClatchy Newspapers (MCT) - Gilbert Fiorentino wants to create a whole new way of shopping for technology products.

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As chief executive of the consumer products division for Systemax, Fiorentino saw a tremendous growth opportunity when the company in January paid $30 million for the CompUSA name and 16 stores in Florida, Texas and Puerto Rico.

Originally Fiorentino thought integrating online shopping into traditional stores would be simple. Fiorentino had already done it on a smaller scale with TigerDirect, which started as a Miami-based Internet retailer and expanded into retail stores.

"We felt it would be cheaper to repair the CompUSA name than build the TigerDirect brand into household status," said Fiorentino, chief executive of both CompUSA and TigerDirect. "We already knew how to use the Internet to drive customers into our stores. We thought we were geniuses."

But when Fiorentino reopened the CompUSA stores in April, sales were lower than they were before the acquisition and only about 70 percent of projections.

"The customers weren't coming back nearly as fast as we thought they would," Fiorentino said. "I started calling the CompUSA acquisition a mistake."

Fiorentino set out to diagnose the problem. He spent most of June traveling around the country, touring both his stores and those of his competitors in the consumer electronics industry.

"I found that the state of the art in retail is underwhelming," Fiorentino said. "My Web site gave the customer a better experience."

The solution, he realized, involved bringing the strengths of TigerDirect's Internet retailing into the stores. The initiative _ dubbed Retail 2.0 _ was unveiled in October at the first prototype store in Kendall, Fla.

Plans call for rolling out the format over the first half of next year to completely transform the 29-store chain. Another new store will open in February in Pembroke Pines, Fla., and the company is aggressively looking for more locations.

The focus of Retail 2.0 is making the entire store more interactive and giving shoppers the detailed product information TigerDirect already offers on its Web site.

Every single desktop, laptop, LCD monitor and flat-panel television is connected to a live computer and the Internet _ a total of almost 300 computer-connected screens in each store. The update costs between $50,000 and $100,000 per store.

"We're moving retail into the Internet age," Fiorentino said. "Everything we hate about retail can be fixed by technology."

When not in use, the screens flash promotional messages Fiorentino hopes to eventually use to generate revenue by selling advertising.

But as soon as customers walk up and touch the keyboard, they are faced with a detailed product information home page that includes photographs showing close-up views of the product from multiple angles. There are also online manuals and detailed product specifications to satisfy even hard-core tech junkies.

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"It makes the customer his own expert," Fiorentino said. "The customer can help themselves in a much better way."

That also reduces the need for sales staff _ while Fiorentino says he doesn't plan to eliminate sales help, the goal is ultimately to use the same amount of staff to help more customers.

For the less tech-educated customer, what's probably even more advantageous is the ability to go on the Internet and comparison-shop the product right in the store to make sure you're getting the best price. You can also access sites with product reviews, watch product videos and follow links to related product information.

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"If they're able to bring in all the rich content that exists out there on the Internet that can be extremely valuable to customers," said Sucharita Mulpuru, an analyst with Forrester Research. "But it's often very difficult to interpret the language of all that jargon. Consumers want to know what those specs mean."

Customer Paul Hampton Crockett liked what he saw on a recent visit to the revamped CompUSA, particularly all the information now easily available.

"I think it's very smart," said Crockett of Miami, who normally does most of his shopping at TigerDirect but visits the store when he needs something quickly. "By offering more information, hopefully you can optimize the chances of hooking the customer up with something that best serves them."

But other customers like Carolyn Lindgren still can't navigate things on their own, like finding the resolution on the various monitors.

"You need a salesman to help you," said Lindgren of Palmetto Bay, Fla. "Sometimes you can't find that on a screen."

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Additional computer stations located strategically throughout other parts of the store provide information on other product categories. One helps customers figure out what type of ink they need for a printer. Another will guide customers to the right memory capacity for digital cameras, computers and more.

In the hard drive aisle, the computer stations advertise the products on special that week. The computer will also be hooked to a scanner that would allow a customer to pick up a hard drive, scan it and learn about its features.

Longer-term plans call for the installation of webcam-equipped kiosks so shoppers can ask questions of experts like a Microsoft or Cisco-certified engineer. Eventually, the stores will have WiFi, and a customer could type a product number into a BlackBerry and pull up all the detailed information.

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To give customers an incentive to visit his stores more often, Fiorentino's service department offers a free PC scan, which can diagnose and fix a slew of minor computer problems. He has also moved the service department into a prominent corner at the front of the store and more than doubled the number of technicians.

"I want you to get comfortable with us and see that we out-geek the Geek Squad," he said.

Whether it's through service or merchandising, Fiorentino's objective is to try to differentiate CompUSA from the category leader and Geek Squad-creator Best Buy. Under previous owners, CompUSA struggled to compete in an industry where low prices rule and everyone from discount stores to warehouse clubs has taken away business.

"We're not a Best Buy wannabe," Fiorentino said. The old CompUSA and Circuit City, he added "both tried to chase Best Buy. What we're offering is a completely different environment."

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Industry experts say CompUSA's ability to execute on the strategy will determine its success.

"They're trying to hit that hole in the market that isn't currently being served," said Ben Bajarin, director of consumer technology for Creative Strategy, a consulting and analyst firm. "They're going to do best with people who are already somewhat a tech geek, who walk in and know what they want and aren't looking for a lot of hand-holding."

The challenge is getting these improvements to start showing up on the bottom line.

While the CompUSA acquisition has helped increase Systemax's sales and compensate for other sales declines, higher costs have eaten into profitability.

For the third quarter, revenue in Systemax's technology products division jumped 8.1 percent to $676 million. That included $63 million from the CompUSA retail stores and Web site, and $139.4 million for the first nine months of 2008.

But Systemax's third-quarter net income declined 35.8 percent to $11.3 million from a year ago. The decline stemmed from slowing sales growth and costs associated with the CompUSA retail stores. Earnings for the first nine months of 2008 declined 5.4 percent to $42.9 million.

TigerDirect also must still deal with an ongoing investigation by Florida Attorney General Bill McCollum. TigerDirect and affiliate Onrebate.com face allegations that they delayed or kept customers' product rebates. An attorney general's spokeswoman said company subpoenas have been issued.

While the economy may pose challenges for expanding the business in the short-term, Fiorentino believes the fallout that will put other retailers out of business will also provide opportunities for him.

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"This is my chance to steal market share from my competitors," Fiorentino said. "If I can get one hair from each of their heads, it's enough for me. Companies who are willing to invest today will come out stronger."

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© 2008, The Miami Herald.