Brick and mortar stores have suffered as more consumers look to online markets for retail purchases. E-commerce has an expected growth rate of nearly 10% per year. With this expansion, brick and mortar stores are reacting differently.
Consumer electronics stores have suffered. Circuit City closed down and others have been struggling to survive. Wal-Mart Stores, Inc. (NYSE:WMT) and Target Corporation (NYSE:TGT) expanded their electronics selections, which has made it more difficult for specialty stores to thrive.
The low-credit store
The company operates 68 stores in Texas, Louisiana, Oklahoma, New Mexico and Arizona. The company serves lower-income consumers and offers in-store credit. Roughly 61% of retail purchases are financed with in-store credit services. It has been able to corner this market of the under-banked population.
The company is in the process of remodeling some of its locations. It has also been selling more mattresses and furniture. Margins are much higher on these products than on electronics. With a projected 20% increase in sales, the stock price will likely grow to $47 per share – if the company can come through with actual results.
The big name store
Best Buy Co., Inc. (NYSE:BBY) has one of the strongest brands in specialty electronics retail. It operates 4,379 stores worldwide with over 1,500 of these in the United States. The company has had a challenging year, facing steep competition with online retailers. But, the stock has more than doubled in the last few months to $24.34 per share.
One main factor that has stalled Best Buy’s growth is “show-rooming.” This is where a customer comes in to a store and browses products, learns about them and then purchases them online for a lower price.
Best Buy Co., Inc. (NYSE:BBY) did two things to fight this challenge. First, it instituted a price-match guarantee–if a customer finds a cheaper price, Best Buy will match it. Second, Samsung announced it will launch the Samsung Experience inside Best Buy stores to showcase its own products.
Last year the company closed 49 of its stores in an effort to cut costs. This year it will close an additional 5 stores. This will save the company roughly $800 million by 2015. This is a step towards better profits, but it will be a long road ahead. New CEO Hubert Joly is focusing on online sales and escalating a multi-channel customer experience and cutting costs.
The appliance specializer
hhgregg, Inc. (NYSE:HGG) is a retailer of home appliances, televisions, electronics and other home goods. It operates 228 stores in the United States. The company has grown its revenues by 68% over the last three years, and nearly 40% of all sales come from appliances. It offers home delivery service for most of its large appliances.
With large home appliances there is a built-in cycle. Appliances need to be replaced regularly so there is a multi-year cycle of purchases for certain appliances. Because of this, analysts at Reuters expects sales to decline this year but grow by 7% next year.
The company isn’t focused on building new stores or the expansion of stores. Instead, it wants to make its current stores more productive and profitable. The year ahead will see some challenges for the company, though. The holiday quarter brought a same-store sales decline of 8.3%. This should be the highest growth quarter for electronics retailer.
Final thoughts
Specialty electronics retailers are still going to see challenges with sales because of online retailers like Amazon.com, Inc. (NASDAQ:AMZN). One competitive advantage that Amazon lost is that roughly 50% of U.S. customers will now have to pay sales tax on online purchases. Consumers have fewer reasons to buy online now. They will have to pay sales tax and stores like Best Buy Co., Inc. (NYSE:BBY) offer price-match guarantees, so they can get the product at the same price in store.
Best Buy Co., Inc. (NYSE:BBY) may be on the cusp of a turnaround if it can continue to make strategic moves to get more customers in the store. The partnership with Samsung and the price-match guarantee are great starts. The plan to close stores to save money is also a smart move for now.
CONN’S, Inc. (NASDAQ:CONN) looks like a buy. It has been showing strong signs of growth and has potential this year. Investors have already brought the price up but if the projected 20% growth continues this year, the stock value will rise. HH Greg doesn’t have the strength in the last few quarters to bring the growth it needs this year. The stock will likely fall, so stay away from it.
Austin Higgins has no position in any stocks mentioned. He is the Principal Consultant for Avant Venture Group and focuses on building businesses through innovation, growth and investment. Read his company’s blog at BuildInvestGrow.com and follow him on Twitter @Austin_Higgins.
The Motley Fool recommends hhgregg.
