This is the time of year for giving thanks, and we all have quite a bit to be thankful for. Though we complain about having a divided country, we live in a place where power changes hands without violence. And for all the angst about rising taxes, at least we live in a country where work is still rewarded with the possibility for great wealth. The economy isn’t the healthiest right now, but it’s still a fine time to be an American.
That said, there plenty of companies who aren’t doing particularly well and who should be thankful that they are still in business at all. And by next Thanksgiving…they may not be.
I’ll start with electronics chain Best Buy (NYSE:$BBY). Best Buy posted earnings this week that were wide off the mark of expectations, sending the share price down a quick 8%.
Big deal; companies miss earnings all the time, right? Yes, but Best Buy’s problems run far deeper than a single earnings release.
The company has become the unofficial (and unpaid) showroom for the entire electronics industry. Want to check out the new Samsung Galaxy phone…or Microsoft (Nasdaq: $MSFT) tablet? Then you drive to Best Buy. But do you whip out the credit card and buy it there? No, probably not. Not when you can go to your smartphone and order it on Amazon.com (Nasdaq:$AMZN) or another discount online retailer for far cheaper…and get free shipping. The Washington Post reported that fully 20% of shoppers plan to “showroom” their Christmas shopping this year. And this number should only continue to grow.
There is no easy way out of this problem. Best Buy can improve its web presence and try to attack Amazon head on, as Wal-Mart (NYSE:$WMT) is attempting to do. But they are still going to be at an enormous cost disadvantage for having to maintain an expense network of stores and employees.
Perhaps Best Buy should accept its role as Samsung, Sony (NYSE: $SNE) and Apple’s (Nasdaq: $AAPL) showroom and ask that these manufactures pay them for the publicity. I don’t see that approach working, mind you, but their current approach isn’t working either.
Next on the list is JC Penney (NYSE: $JCP). There comes a point in a retailer’s life when it is simply no longer relevant. Best Buy still gets foot traffic, and some of those visitors do actually buy while in the store (after checking the prices of competitors on their phone, of course).
But JC Penney? Not so much.
As I wrote in a recent post, JC Penney is toast. The company is a “tweener,” squeezed between Wal-Mart and Target (NYSE:$TGT) on the low end and Dillard’s (NYSE:$DDS) and Macy’s (NYSE:$M) at the mid-range price point. And I’ve said nothing yet about deep discounters such as Ross Stores (Nasdaq:$ROST) or, again, online retailers such as Amazon.
There is no compelling reason to go to a JC Penney store, and it shows in the company’s results. Revenues have been stagnant for years…actually fell by 26% last quarter. Earnings are firmly in the red and have been for the past four consecutive quarters.
In a weak overall economy, I do not see a future for a marginal retailer like JC Penny. Outright bankruptcy might still be a few years away…but I see no recovery for a store that has already fallen so far in relevance to shoppers. I challenge you to name a single friend or family member who has shopped there in the past 12 months.
And finally, we come to RadioShack Corp (Nasdaq:$RSH). I do not see RadioShack surviving to see another Thanksgiving, at least not in its current form, and from the looks of things, neither does the market. The stock has lost 84% of its value over the past year and over 90% since 2011.
If Best Buy’s business model is under threat, then how much worse off must RadioShack be? The company’s niche market of specialty electronic parts and components has been absolutely killed by internet competition. An on those days you need a particular part or cable immediately and can’t afford to wait for shipping, you’re going to get a better selection at Fry’s Electronics or even Best Buy or Wal-Mart.
RadioShack has tried multiple times to reinvent itself by selling things such as mobile phones and service and mainstream consumer electronics. But by doing this, they are competing head to head with big-box retailers and the mobile phone providers themselves. It’s hard to see how RadioShack can compete here, and frankly, the numbers speak for themselves. The company has had three consecutive losing quarters…and this losses have gotten bigger with each release.
RadioShack is also saddled with $750 million in debt…$375 million of which is due in 2013…and a market cap of only $193 million.
Investors might get bailed out by an acquisition here. At the right place, Best Buy or some other electronics retailer might the chain to be worth buying. But barring this, I expect RadioShack to bleed to death in the very near future.
Disclosures: Sizemore Capital is long WMT and MSFT.
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