These Companies Will Continue to Fail

Unless you've been living under a rock, or in hibernation, you've watched the stock prices of Best Buy  (NYSE: BBY  )  and RadioShack  (NYSE: RSH  )  fall to the floor this year. Scratch that, crash through the floor, with declines of 48% and 75%, respectively. Best Buy and RadioShack are struggling, reporting same-store sales declines of 4.3% and 1.6%, respectively, in the most recent quarter. These two retailers need a strong finish to the year to restore investors' faith. Let's take a look at survey trends that should worry the retailers hoping for a strong holiday season, and what it means for investors going forward.

Digging into the numbers
The National Retail Federation released a survey earlier this month that highlighted some negative trends.

  • 11.3% of shoppers had already finished shopping for the holidays, an increase from 7.6% at the same time last year.
  • Those still shopping had completed 57% of their holiday purchasing, the highest percentage in the survey's 10-year history. 
  • 11.2% of shoppers responded that they hadn't started holiday shopping yet, compared to 16.5% last year. 

This shouldn't be a surprise; early deals have consumers eager to get out and shop, thus finishing earlier. The eager shoppers drove retail sales up in November and the National Retail Federation estimates sales will increase 4.1% over last year's holiday season. Best Buy and RadioShack need a strong finish to the season, yet face the tough task of luring consumers back to their stores. Let's look at the different strategies being deployed to entice additional consumer spending. 

Deals and promotions
RadioShack is trying its best to lure shoppers back with rock-bottom prices and limited-time offers. It recently announced a $99 sticker price for a Samsung Galaxy S III that cut me deep personally. I happened to purchase the phone one month earlier at double the price. RadioShack was also offering a "buy one, get one free" deal on the HTC One X with an AT&T two-year plan commitment. It's also offering online-only deals for $36 activation credit on certain phones. 

Aside from those rock-bottom prices, RadioShack made a slick move bringing in Affinity Solutions recently. Affinity Solutions uses over 8 billion credit and debit transactions to identify consumer spending habits, shopping profiles, and what motivates them. They take this information and in partnership with retailers, create direct-mail, print, Web, and email promotions that send offers, create awareness and drive sales.

None of RadioShack's competitors are using Affinity Solutions, so this move should give it a competitive advantage in luring customers into stores during the holiday season. Driving revenue and profits during this time is obviously important for investors. These low prices and limited-time offers should drive foot traffic and boost sales, but will it be enough to save the holiday season? I'm not a believer. Rock-bottom prices boost sales, but lead to razor-thin margins and leave little growth on the bottom line

Goodbye, Best Buy?
While RadioShack is focusing on in-store marketing, Best Buy's taking a different approach and reaching out to potential online customers. Recent trends show this could be a savvy move. For the first time, more than half of shoppers say they will use the Internet for gift-buying this season, the highest percentage on record. Black Friday sales online surpassed $1 billion, a massive 26% increase from last year. On Cyber Monday, online spending rose 17% to $1.46 billion. 

Best Buy's execution with online shoppers is important for online sales because 41% of mobile shoppers claimed they would be less likely to shop at a retailer if they had a poor experience using the mobile app or website. Mobiquity, a company that specializes in mobile application development and advising, recently released a mobile shopping satisfaction report, studying online consumers. What Mobiquity found was good for Best Buy: Apple Stores, Best Buy and Kohl's scored the highest for satisfying mobile shopping experiences.

While Best Buy seems to have executed well for online sales, Wal-Mart  (NYSE: WMT  )  was the most-browsed and most-shopped website via smartphones and tablets. Best Buy ranked third on purchases through smartphones and second for tablets. Amazon.com  (NASDAQ: AMZN  )  was not in the top three for either smartphones or tablets, a surprising result considering Amazon's online presence.

Not only does Best Buy face competition from other bricks-and-mortar operations, but it will continue to fight online juggernauts. Wal-Mart and Amazon extended free shipping and guaranteed arrival by Christmas on goods ordered before Dec.18. During the most important time of the year for retailers, these giants were pulling out all the stops.

Bottom line
From my perspective, Best Buy is executing its website much better than RadioShack and will attract more online shoppers. Is it, however, enough to save Best Buy's holiday season? I'm not convinced it is, and I don't expect the holiday season to restore investor faith in either of these companies. There are much better retail investments, including Wal-Mart and Amazon. Despite recent maneuvers by Best Buy and RadioShack, I expect them to continue to lag in this cutthroat industry.

More expert advice from The Motley Fool
The bricks-and-mortar versus e-commerce battle wages on, with Best Buy caught in the middle. After what might have been its most tumultuous year in history, there are now even more unanswered questions about the future for the big-box electronics retailer. How will new leadership perform? Will old leadership take the company private? Will a smaller store format work out for both the company and its brave investors? Should you be one such brave investor? To help answer all these questions, The Motley Fool has released a new premium research report detailing the opportunities -- and the risks -- in store for Best Buy. Simply click here now to claim your comprehensive report by today.


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  • Report this Comment On December 26, 2012, at 6:25 PM, BenFE08 wrote:

    Unfortunately, in RSH's case, they still are not offering what the CUSTOMER wants at a competitive price INSTORE so that the customer can buy and walk out with it. Their stores are, in fact, inventory sparse, 1-2 deep (if that much) on featured items, and often not at all (you have to order them from the website and have them shipped to you or to the store). They are still harping on cellphones in a highly saturated market that yields little profit margin.

    BBY, tho it has lost its way in a lot of areas, does hold a commanding lead over RSH in the area of major product offerings and availablity at BETTER prices and ability for the customer to purchase and walk out with it.

    Both stores are hurt by the lack of knowlegable personnel in product lines and both are hurting in the customer service arena - especially RSH which has found its $10 "coupon for every $50 purchased a MAJOR HEADACHE this season and customers are NOT getting the coupons when promised, as well as major snafus in the #s owed to the customer. Customers are NOT happy and highly frustrated with RSH's customer service line as well, often being placed on hold for LONG LONG waits with no resolution or told to call back.

    Until RSH gets someone in charge with a retail background who is also customer service minded, they're going to keep having problems. The recent hiring of 2 new VPs who have retail backgrounds is a step in the right direction but there's a LOT more work to do. If they can purge the company of the Blockbuster failures that came into the management positions, then they might just have a shot at turning RSH around.

  • Report this Comment On December 27, 2012, at 12:22 PM, TMFTwoCoins wrote:

    All good points.

    Personally, I think it's as simple as this, technology has made the BBY and RSH business model difficult to sustain. The speed at which this happened is much like that of Netflix disrupting Blockbuster's model.

    If either company has a shot at a turnaround, it will take an entire business model revamp.

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