Consumer electronics retail is a brutal business. A number of once large and dominant companies have been lost to bankruptcy, including Circuit City and, more recently, RadioShack.
Investors looking for exposure don't have that many options, and the ones left are typically far more diversified. Still, it may be prudent to invest in electronics retail: The number of consumer electronics categories has been ballooning in recent quarters, with new categories (including fitness trackers, smartwatches, set-top boxes, and smart home devices) emerging at a rapid rate.
Best Buy is the best pure electronics retailer
Best Buy is really the only quality, publicly traded pure electronics retailer left. Best Buy does sell more traditional home appliances -- washers, dryers, stoves and such -- and media, but almost 80% its revenue comes from the sale of consumer electronics, including TVs, stereos, game consoles, smartphones, PCs, and tablets.
Best Buy has been on a roller-coaster ride over the last few years. In 2012, it was commonly seen as a potential bankruptcy candidate, and it lost its CEO amid allegations of an inappropriate workplace relationship. Its founder, Richard Schulze, tried to take the company private, but ultimately couldn't put a deal together.
Since then, however, Best Buy has largely moved in one direction: up. Including dividends, Best Buy has returned nearly 120% since August, 2012.
Best Buy's current CEO, Hubert Joly, has remade the company, slashing costs and focusing on its online operations. Best Buy's profitability has increased -- its adjusted earnings per share rose 25% last year on an annual basis -- and its cash balance has soared. About one quarter of Best Buy's market cap was in cash at the end of last quarter.
Best Buy's management plans to continue slashing costs and returning excess capital to shareholders. It paid a special dividend earlier this month, and it has begun buying back shares for the first time in several years.
Amazon is much bigger than electronics
Amazon is also a dominant force in electronics retail -- though exactly how dominant is difficult to say.
Amazon doesn't break out its consumer electronics sales the way Best Buy does; instead it lumps it in with its "general merchandise" -- an enormous category that includes all manner of products. But its Amazon's single largest category, and it's growing rapidly. Last year, Amazon derived about 70% of its sales from electronics and general merchandise, up about 24% on an annual basis.
Amazon has an obvious advantage when it comes to consumer electronics, a category of products that lends itself to online shopping. In contrast to apparel or food, which may be better sold in stores, consumer electronics are uniform devices with no expiration dates.
GameStop is betting on consumer electronics
GameStop's core business -- the sale of physical video game discs -- has been under assault for several years. The rise of online storefronts and full-game downloads has called into question the long-term viability of focused video game retail. In an effort to diversify its business, GameStop has shifted into more general consumer electronics -- and it's had a tremendous amount of success.
GameStop has three other store brands: Cricket Wireless, Spring Mobile, and Simply Mac, collectively known as GameStop's technology brands segment. Spring Mobile and Cricket Wireless sell smartphones; Simply Mac sells Apple products. Technology brands are still, relatively speaking, a small part of GameStop's business, but they're growing at a rapid pace. In February, GameStop secured 163 RadioShack leases for the segment, aiming to expand the footprint of Spring Mobile. GameStop's namesake stores have also begun to dabble in consumer electronics, engaging in the purchase and resale of used gadgets, primarily smartphones and tablets.
Last year, consumer electronics generated only 5.6% of GameStop's sales, but about 7% of its gross profit. It's also a high-margin -- 36% -- business, and it's growing rapidly. GameStop's consumer electronics revenue rose more than 70% last year, and its gross profit nearly tripled.
Investors will likely think of GameStop more as a video game retailer than a consumer electronics company for some time, but if its technology brands segment continues its rapid expansion, that may change.
Sam Mattera has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com and GameStop. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.