The rally since the stock market bottomed out four years ago has been nothing short of ferocious and phenomenal. There are quite a few companies that have returned greater than 1,000% since the bottom. Conversely, a handful of formerly great brand-name companies that hit rock-bottom have yet to truly recover.
In the spirit of NCAA March Madness and broken brackets everywhere (including mine), I propose to examine two large business models that look to be on the mend and could very easily upset a majority of analysts by reporting a big upside profit surprise next quarter.
Best Buy Co., Inc. (NYSE:BBY)
Some analysts have proudly proclaimed the death of big-box retailing and used the dissolution of Circuit City as evidence that the large-scale electronics store simply couldn’t survive. With Best Buy’s sales in the doldrums and shoppers admitting to using Best Buy’s showrooms as show-and-tell forums while purchasing items on Amazon.com, Inc. (NASDAQ:AMZN) for less at a later time, there was a period where these analysts appeared to hit the nail on the head. Poor leadership had failed to see a rapid push toward mobile devices and cost-consciousness, and it cost Best Buy severely.
However, new CEO Hubert Joly, who is a specialist at turning around aching businesses, has developed the perfect plan to right the ship.
The most dramatic departure from Best Buy’s previous pricing strategy is that it plans to match prices — including online prices — in an effort to stop “showrooming.” Forbes called the action a “late salvo,” but I feel it’s the perfect time to go after Amazon. You see, Amazon is beginning to feel the effects of having various states around the U.S. requiring it to collect sales tax. One of its biggest advantages had been its ability to subvert state taxation, which made its products appear noticeably cheaper. With California and Pennsylvania starting to collect tax last September, and New Jersey, Virginia, Indiana, Nevada, Tennessee, and South Carolina set to be added to the list between 2013 and 2016, Amazon is seeing its comparative advantage slowly slip away. Thus, it makes complete sense for Best Buy, now, to step up and match Amazon’s prices to give the customer both the convenience of trying out its various products and the ability to purchase knowing they’re getting the best price.
A focus on mobile products and a slimming down of its store size are other key components to the turnaround campaign. Joly understands that mobile devices (e.g., smartphones and tablets) are what’s driving consumers into the stores, not just televisions and appliances anymore. With a focus on the right phones and tablets, Best Buy Co., Inc. (NYSE:BBY) will have won half the battle, getting the customer into the store.
For the other half of that battle, Best Buy will be offering incentives to its sales associates (a marked difference from years past) to make sales, which should ultimately help drive customer service and provide the differentiation factor that customers simply can’t get from the Internet or Amazon.com, Inc. (NASDAQ:AMZN). Joly also wants to focus on putting his top sales performers in weekend time slots, where traffic is at its highest.
So far, the results are working much better than anyone had anticipated. Best Buy’s fourth-quarter report, released in early March, delivered 0.9% same-store-sales growth (reversing a long contraction) and showed that Best Buy, too, can be a prime online destination, with online revenue growing 11%. If you’re looking for a big upset next quarter, bet on a big resurgence from Best Buy.
Staples, Inc. (NASDAQ:SPLS)
This is like a two-for-one, because Amazon.com and other online retailers are the prime culprit for Staples’ woes as well. Staples, the world’s largest office-supply chain, has struggled with increased price competition online, as well as slow growth domestically and in Europe among small businesses, which are its bread-and-butter enterprise customers.