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The Conn’s Paradox, or the Synergy of Awful

in Analysis

One plus one equals three: That is a business school definition of synergy. Two companies join forces, and the quality and profitability of the combined entity improves more than the arithmetical sum of the parts. On the other hand, when you combine two awful businesses you get the inverse synergy: Negative one plus negative one equals negative three.I expected to see inverse synergy at Conn’s when we started analyzing it; after all, the company consists of two pretty awful businesses — a retailer of electronics, furniture and appliances and a subprime lender. However, we discovered the opposite phenomenon and are now proud to reveal Conn’s paradox: the (positive) synergy of awful.Conn’s brick-and-mortar retail business — especially in electronics — has very few competitive advantages. The company sells commodities and is therefore fighting for its life against competitors that are much larger and have greater buying power (think Wal-Mart and Best Buy), often have more-efficient distribution systems ( Amazon) and therefore have structural cost advantages. The subprime lending business is not any better: Just a few years ago, that industry was the culprit that almost bombed the U.S. into a depression.Conn’s paradox is that the severe unattractiveness of each business in...