Electronics Retailers Struggling in an Online World

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Online shopping hasn't killed the retail business just yet. Many consumers still want a place to try out and buy the very devices they'll use for all that shopping. But, some electronics retailers have been experiencing rough waters in recent years, with RadioShack (NYSE: RSH) reporting consecutive losses and H.H. Gregg suffering from low sales in its most recent quarter. Continued concern about showrooming has some electronics retailers restructuring their business model in order to more effectively compete with online giant, Amazon (NASDAQ: AMZN).

Following Best Buy

Best Buy (NYSE: BBY) seems to have already realized that change is unavoidable to keep up with the rapidly-evolving marketplace. The company is not only surviving the online takeover, it seems to be thriving. Just as analysts were sounding the death knell for the company, Best Buy rebounded, surging 155% to become one of the top-performing S&P 500 stocks.

The outlook for Best Buy isn't quite so positive. Analysts feel part of Best Buy's recent success is due to the company selling its stake in Best Buy Europe, and therefore, the streak is unlikely to continue. The company is likely to face increasing competition from e-tailers, requiring it to struggle to keep costs low without sacrificing profit.

Still, Best Buy is working hard to appeal to today's consumers, especially with its switch to smaller locations called "Best Buy Mobile." The company also seems to realize its value to computer shoppers, who often need in-person assistance when making purchasing decisions. Computer sales accounted for nearly half of the company's revenue in its most recent quarter. But, with the company closing 50 of its original stores, many analysts are wondering if the company's core business model will suffer.

Is RadioShack following?

When Radio Shack announced a new concept store in Manhattan earlier this month, analysts considered it a new era for the retailer. New CEO, Joseph Magnacca, has big plans for the company following a disappointing first quarter. The former Walgreens CEO announced a 100-day turnaround plan when he joined the company in February, and the Manhattan store is considered part of that plan. Like Best Buy Mobile, this first RadioShack concept store focuses on mobile devices from Apple and Samsung, introducing some of the latest new gadgets to tech-hungry customers.

Unlike Best Buy and H.H. Gregg, however, RadioShack has been suffering this year. For the past year, the company has seen declining sales, losing 7% in the past quarter alone, with losses totaling $43.4 million. Worst of all, it was the company's fifth consecutive loss.

While Magnacca has high hopes for the company, analysts are still skeptical. Can a company whose name refers to a device that was more relevant 50 years ago meet its goal of appealing to younger consumers? Chances are, Best Buy is more likely to win that battle.

Amazon goes digital

Life isn't always sunny for online retailers, either. While Amazon's stock recently surpassed the $300 mark for the first time ever, the company's continued profitability has been questioned. The online retailer maintains rock-bottom prices, sometimes at the cost of its own bottom line. The company is still a good buy for investors, however, especially when compared to the per-share prices of Apple ($400+) and Google ($900+).

But, Amazon's increasing focus on digital content seems to be making a difference. Through Amazon Instant Video, the company offers TV shows and movies, and through its own production studio, Amazon is creating original content to compete with Netflix and Hulu. The hard work is paying off. In its most recent quarter, the company saw a 22% increase in revenue, with a 26.6% gross profit margin. That was the highest gross profit margin for the company in more than a decade.

The outlook for Amazon might be promising, with the company reporting June same-store sales that were more than 30% higher than last year. However, net income continues to be a problem for the online giant, decreasing 37% in its most recent quarter. To provide a more big-picture look, consider that since 2010, revenue has increased 80%, but operating costs have increased by that same amount.

Final thought

For Amazon, continuing to undercut brick-and-mortar locations could spell trouble over the long haul. But, the company has kick-started Best Buy and RadioShack, causing them both to rethink the electronics retail model to benefit consumers and investors alike. Overall, while Best Buy is showing considerable progress, customers are increasingly searching for convenience. If local stores want to continue to compete with Amazon, they'll have to rethink their business models. Long-term, Amazon seems to be the surest bet, unless Best Buy and RadioShack can provide online shopping while still keeping delivery rates low enough to undercut Amazon's always-competitive prices. Amazon, on the other hand, will have to find a way to strike a balance between competing with local stores and sacrificing its own profitability.

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Stephanie Faris has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com and RadioShack. 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. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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