Is There Any Hope for High Tech Retail Chain Stores?
Jonathan is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
In a "percent storm" of adverse economic and financial conditions, publicly traded retail chains in the high tech sector are sinking. Flooded by competition from e-commerce retailers such as Amazon and Ebay, major retail chains that sell high tech consumer goods such as Wal-Mart (NYSE: WMT) and Target, and specialty stores like Apple (NASDAQ: AAPL), Best Buy (NYSE: BBY), Radio Shack (NYSE: RSH), and HHGregg (NYSE: HGG) all have diving share prices. Circuit City filed for bankruptcy in November of 2008.
The past year has witnessed strong stock performances by market leading high tech companies. Over the last 52 weeks of market action, Apple is up by almost 70% as both its products such as the iPhone and its cutting edge retail stores are doing very well. For that period, the only investors doing well with Best Buy, Radio Shack and HH Gregg have been those holding a short position, who are now living large and in charge from the woes of the high tech retail industry. Best Buy is down by 29.12% for the last year of trading with a 16.77% short position. A short position of 5% is considered to be a sign of trouble for a company. Radio Shack is off by 69.93% for the previous 52 weeks of market and now has a short float of 38.54%. For the same period, HH Greg is down by 14.73% and the shorts have established a 31.22% float.
High tech retail is a unique niche market that not does not favor chains like HH Gregg, Radio Shack and Best Buy. Those who want the high end products and a rarified, edifying shopping experience will head to Apple. At an Apple retail store, the Genius Bar offers advice and trouble shooting from trained and experienced employees in a highly stylized experience. As for sharing a moment in buying high tech goods and services at Radio Shack, one analyst wrote, "Walk into one of its stores. Try to contain your laughter. At least wait until you're out of the view of one of the company's beaten-down sales executives. I could soak up more inspiration spending time on Death Row than in a Radio Shack store."
Major department stores such as Wal-Mart and Target have also cut into the customer base of Best Buy, Radio Shack and HH Gregg. Consumer electronics have become so entrenched now that much, if not most, of the average consumer's needs can readily and capably be met at Target and Wal-Mart. While Wal-Mart and Target have their detractors, the commitment to customer service at both stores has never been a major issue. Wal-Mart did not get to be the largest retailer in the world by repelling customers.
By contrast, about customer service at Best Buy, a blogger by the nom de guerre of "Blake" wrote, "I’ve always hated going into Best Buy. You go to their computer department and its always understaffed. I’m always sitting around waiting to find a salesperson that I can give $2,000 to so I can buy a computer and get out. If you happen to go through their queue to find a cash register, it’s always a 5+ minute wait. God forbid if you have to return something, count on 15-25 minutes of waiting in line. Best Buy sucks and I’m glad they’re getting spanked by online retailers. The only reason I go into Best Buy now is to get a demo of a product so I can go online and buy it from Amazon.com. I watched Circuit City crash and burn with similar customer disservice. Sell your stock in Best Buy now."
That was posted on April 16, 2012; and offered very keen investment advice. For the last quarter, Best Buy has fallen by 4.27%. In early April, Best Buy was trading at about $25 a share. Now it is around $21.75. (Best Buy has surged in recent trading due to reports that the founder is looking to take the company private at $30 a share.)
"Blake" highlights another useful point about Amazon. Ecommerce has been devastating to the high tech retail sector. Many products can be bought cheaper on-line with anything. For the high tech savvy, there is used gear on Ebay at a deep discount. Many enjoy the shopping experience and advice found at an Apple store. The "death row" experience at Radio Shack and the "...5+ minute wait" at Best Buy does not entice the masses in from off the street or from in front of their keyboard.
To succeed in retail, a customer must first be lured into a store. Then the selling experience must result in a purchase. That requires both a superior staff and merchandise that result in a competitive advantage for a retail store. The share price trajectories reflect that is not happening for Best Buy, Radio Shack and HH Gregg.
jonathanyates13 has no positions in the stocks mentioned above. The Motley Fool owns shares of Apple, Best Buy, and RadioShack. Motley Fool newsletter services recommend Apple and hhgregg. 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.If you have questions about this post or the Fool’s blog network, click here for information.