December 17, 2012 09:45 ET

Best Buy and RadioShack Positioned for Strong 2013

The Provides Stock Research on Best Buy Co. Inc. and RadioShack Corp.

NEW YORK, NY--(Marketwire - Dec 17, 2012) - The embattled electronics store industry, which includes players like Best Buy Co. Inc. (NYSE: BBY) and RadioShack Corp. (NYSE: RSH), is showing signs of improvement as 2012 winds down. Heavy competition from a burgeoning online retail market challenged the industry for much of the year but efforts to shift strategies may spark a period of growth. A weak macroeconomic environment and less than favorable product pricing trends are also compounding the effects of greater competition. Despite these headwinds, a recovery for the industry looks feasible if companies can successfully implement plans to lessen the impact of changing consumer trends and growing online retail threats. 

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More and more electronics retailers are moving away from large-scale retail facilities and towards smaller mobile device focused stores. In doing so, store operators are able to reduce overhead costs and better capitalize on burgeoning mobile device demand. Best Buy Co. Inc. is currently transitioning to such a model. It intends to double its mobile stores over the next three years and reach a total of 800 locations.

Conversely, RadioShack Corp. is lowering its store counts, branching further into overseas markets and increasing its kiosks to spur a comeback. Getting its store count down should have some positive aspects but could limit its exposure. International markets appear to offer much more upside. It plans to open an additional 50 stores in Mexico this year to reach a total of 275 and is targeting many more store openings in the next four years. Mexico is not the only market it is looking to expand in either. It has an agreement in place to grow in Southeast Asia as well as a joint venture agreement with China's Hon Hai. These expansion efforts could lead to substantial gains in the long-term and offset the challenging domestic market. There is some potential for domestic improvements as well though. RadioShack continues to increase and optimize the efficiency of its kiosks within Target stores. This could better position it to capitalize on strong mobile device demand and allow it to grow moving forward. 

Capitalizing on the holiday sales season will be key to the industry building momentum heading into 2013. Stores are taking varied approaches to accomplishing this goal. Best Buy, for example, has decided to price match this holiday season. Price matching will inevitably pressure margins but more importantly it will help it bring in more much-needed customers and perhaps gain some market on its competitors. Contract sales would also be a benefit of this strategy and could help buoy revenues next year. 

Best Buy investors will also want to track the efforts of owner Richard Schulze to buy out the company he founded. The move to privatize the company could further spark its comeback. Additionally, shareholders would also be short-term beneficiaries of a completed deal because of a one-time payout resulting from buyout compensation. A buyout would also put the company in a better position to quickly adjust to a rapidly changing retail environment. The ability to make faster changes is becoming increasingly important to the electronics retail industry as of late. RadioShack has a distinct advantage over some of its competitors in this regard. It typically sees about one-thousand of its store leases expire each year, which puts it in the position to make quicker adjustments to store counts and square footage as it deems necessary. 

Overall, success for brick-and-mortar electronics companies will hinge in part upon staving off the enormous competitive threat that major online retailers present. Retailers effectively down-scaling their domestic operations, growing international revenues and quickly adapting to a changing retail landscape appear best positioned at this time. An improved macroeconomic environment would also help propel electronics stores higher. 

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