The end of the electronics store?

Facing tough competition and lagging sales, RadioShack stock is down 75% this year; Best Buy and GameStop are also struggling. Can they turn the corner fast enough to recover?

By MSN Money Partner Aug 31, 2012 12:10PM

By Ann Zimmerman for The Wall Street Journal

 

Is there a future for electronics specialty stores?The Wall Street Journal

 

Not long ago, retailers such as Best Buy (BBY),  GameStop (GME) and RadioShack (RSH) ere outmuscling competitors across America by offering one-stop shopping for the latest televisions, computers, videogames and gadgets.

 

Now all three are fighting to survive. The rise of online competitors like Amazon.com (AMZN) that offer low prices and downloadable products have siphoned customers and sales from these once-powerful retailers.

 

Is there a future for electronics specialty stores? Best Buy, GameStop and RadioShack are trying to fight off extinction by highlighting new hot gadgets and capturing sales customers still prefer to make in person.

 

Can they turn the corner -- fast?

The retail chains are responding with turnaround strategies that highlight their abilities to obtain hot new smartphones and tablets, and are trying to capture those purchases that consumers still prefer to make in person.

 

But they concede they have to evolve fast. "There is a future for consumer electronics in retail," insists GameStop's chief executive, Paul Raines. "But in order to survive, our internal rate of change has to be greater than the external rate of change."

 

His GameStop, which has 6,600 U.S. stores, is adding used iPhones and tablets to its portfolio of new and used videogames. It is also beefing up its digital download services to compete against game websites like Valve Corp.'s popular site, Steam.

 

RadioShack, whose stock is down 75% this year, is playing down cables and connectors and refashioning itself as a convenience store for smartphone buyers. And Best Buy is shrinking its fleet of big-box stores, pushing high-end appliances and retraining workers to focus on tech support. It also is opening hundreds of small stores devoted to mobile phones and tablets.

 

"We're balancing secular decline in the industry with capturing growth in the areas that are exploding," said Mike Vitelli, president of Best Buy's U.S. operations.

 

But retail experts question whether their new tactics -- particularly the push by nearly every store chain to sell more smartphones and tablets -- can make up for the big-ticket products the chains are slowly losing.

 

"The economics of the industry have evolved -- and not to the benefit of most retailers," said Michael Lasser, a retail analyst at UBS.

 

Best Buy recently reported profit fell 91% last quarter on the eighth sales decline in nine quarters at stores open at least 14 months. Its founder is trying to take it private.

 

RadioShack suspended its dividend last month after posting its largest quarterly loss since 1996. GameStop's profit fell 33% last quarter due to declining sales of game discs and consoles.

 

Fierce competition on several fronts

Flat-screen televisions once generated lush profits for Best Buy. Today, retailers have to sell almost twice as many TVs as five years ago to achieve an equivalent amount of revenue -- and even more than that to match past profit levels.

 

The average price of a TV has fallen 40% since 2007 even as screen sizes have increased, while gross profit margins have tightened from about 30% on upper end models to the low teens, according to market research firm NPD DisplaySearch.

 

Consumers today can often find the same television models for similar prices at Wal-Mart Stores (WMT) and Target (TGT) as they shop for groceries and paper towels, eliminating the need to enter a specialty store.

 

Electronics chains were built to let consumers browse competing innovations. But unlike in the past where blockbuster products could emerge from any place, much of the innovation in consumer electronics is increasingly being driven by a single company -- Apple (AAPL) --which has its own stores and sells online as well as through other retailers.

 

No Circuit City boost

The liquidation of Circuit City Stores in 2009 was expected to be a boon for surviving electronics retailers. Instead, Amazon's share of the market rose to 11% from 2% and Apple's jumped to 8% from 6%, according to This Week in Consumer Electronics, or Twice, a consumer electronics trade publication.

 

The danger of retailers' current reliance on a few hit makers is clear at RadioShack, which has built its turnaround on selling smartphones. Profits at the 91-year-old chain, which has 4,700 small stores dotting strip centers in the U.S., Canada and Mexico, have eroded even as its sales have held firm since devoting more space to phones and tablets two years ago.

 

Mobile devices accounted for 51% of RadioShack's $4.38 billion in sales last year, up from 44% the year before. But its gross profit margin has shrunk, falling eight percentage points last quarter to 37.8% from 45.9%.

 

The problem: margins on its iPhone sales are lower than on other phones, though the company hopes to make up the difference selling accessories like phone chargers and warranties. It is also struggling to make money from the 1,400 kiosks it runs inside Target stores.

 

Meanwhile, consumers still identify RadioShack with cables and connectors. "The only reason I go in there is when I need some obscure electronic part," said Diane Jaffee, a retired CPA from Columbus, Ohio.

 

RadioShack CEO Jim Gooch said it is working to improve its deal with Target. He also acknowledged that the company, named for the radio cabins on ships, has an image problem. "We need to rebuild consumers' knowledge of our brand,". Gooch said.

 

GameStop has been the most aggressive in reinventing itself. It is also focusing on the smartphone market -- but with a twist: It hopes to become known as the main reseller of used Apple gadgets and Android phones.

 

It already has the systems to repackage and resell thousands of items after pioneering the sale of used videogame consoles, cartridges and disks, which accounted for 27% of its sales and 47% of its profit last year. GameStop expects to garner $200 million in sales from its used mobile device business this year.

 

"We have plenty of challenges," said Raines, the CEO. "But the threat of losing the consumer has created a burning platform for change."

 

More from the Wall Street Journal:

 

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313Comments
Aug 31, 2012 3:22PM
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All three of these companies are guilty of the same thing, greed.  The mark up as stated by many consumers  below is simply outrageous.  I sell some of the same parts out of my store for $1.50 that Radio Shack sells for $14. and mine are better quality.  I would never buy small parts from this company as you can get equal or better quality parts for cheaper online.  The same can be said for BB and Game Stop.  I have boycotted GS as well as a number of friends/family I know because of their shady business practices and questionable ethics. 

I believe this all translates back to the state of our union.  CEO's making millions, out of control gas prices, the lack of quality jobs, and US...middle class families needing to do whatever possible to save a dollar to just get by.  Many more will retailers, businesses and families will surely come toppling down unless serious reform takes place on our own soil.  Sadly, I don't see it happening.       

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I'll never understand this unhealthy obsession with all these iPhones, Smartphones, tablets, etc. Every numbskull on the street can't seem to get their face away from their little techie device. It's as if they can't stand their own company, and prefer sending inane messages via some gadget when they're sitting/walking alone.
Aug 31, 2012 9:20PM
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Best Buy is failing for many reasons.

1.Best Buy used to have knowledgeable staff.

2 Customer service has declined.

3. Not having items in stock.

4. Not having a cheaper cable options.

5. Too pushy on warranties and other options.

How Best  Buy turn things around?

1. Change all of the above.

2. Stock more apliances because Sears is going down.

3. Offering more freebies like estimates for repairs/ install things for free or lower prices.

4. Get rid of the stuff Wal Mart can compete on or lower their prices.

Radio Shack was dead years ago and Game stop is too game oriented to compete.

Aug 31, 2012 1:06PM
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I have never really found bargains at any of these 3 stores. Best Buy is good if you are looking for the latest/newest techie items. But most of America is like me I believe  looking for a middle of the road to lower end product "just to do the job" w/o all the bells and whistles I will not use. Really 99% can not tell the differece b/w  740 & a 1080 dpi HDTV. Radio shaft has always been over priced like GameStop.

Aug 31, 2012 1:31PM
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Ever since Radio Shack cut their electronic parts inventory down to almost non existent, they have been nothing but a joke of a store. RS used to be the go to place for anything electronics. Now you're lucky if you can find a connector. That, combined with way overpricing their merchandise, means they are doomed to failure. Goodbye Radio Shack. No love loss here.
Aug 31, 2012 7:20PM
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Best Buy treated its customers horribly.  It seemed employees were trained to be suspicious of every customer complaint.  They made it costly to return items with restocking fees, the Geek Squad was bascially a group of poorly-trained high schoolers, the sales staff was generally uninformed about their own products, and management was inattentive.  They treated customers as if they should be thankful for the privilege of shopping there.  I abandoned Best Buy long ago and quite frankly, they deserve to die.

Aug 31, 2012 2:00PM
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I have to jump on this bandwagon. Best Buy is getting what they deserve!! I purchased a computer at Best Buy and bought the "Black Tie Premium Geek Squad Protection Plan" at the same time. The computer cost me roughly $750. The protection plan cost me almost $400. When the computer hard drive crashed and took the mother board with it, it took Best Buy from December 22nd until March 12th to finally get the parts and make the needed repairs. Too bad the parts they got were not the correct parts,and they could not restore the operating system on my PC!! I had to file a claim under the "Lemon Law", which they in turn said would "invalidate" my "Premium Protection Plan", which still had 18-months on it. When I explained that I live on a fixed income and that this was unacceptable, they refused to budge. I continued to fight until they finally had to honor all of their agreements they had made with me. After all of the fighting, arguing, and broken promises from Best Buy, (I am still waiting for my two $50 gift cards I was supposed to get for my inconvienences), I will never do business with them again, and I have warned everyone I know to avoid them as well.
Sep 3, 2012 7:49AM
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The BIGGEST problems with these stores is the lack of training and customer service. People used to go to these store because the people there knew more than they did. Radio Shack was great for any home electronics projects. GameStop (EB Games) is where you could go to find out about games or game systems the employees were playing and why you should buy them. Best Buy employees could actually tell you about the the items they sold.

 

Now people have to deal with know-nothing / do-nothing morons who can't even afford to purchase anything from the store to give you their opinion. I was in Best Buy when the iPad 2 launched, a customer was asking an employee about the features and the differences from the iPad. The employee didn't know anything (even though it was in his section) and told the customer to come back when the Apple Rep was in, though he wasn't quite sure when that would be. I stepped in, talked to the customer (I have both the iPad and iPad 2) and when I was done he bought 3 - all because I answered his simple questions, he wished I could have the money - I wished we were both in a better store.

Aug 31, 2012 7:55PM
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A friend recently went into Best Buy for some cables - something like $65 - and he found them for about $10.00 online on Amazon.  People may go into these stores and look around but then they go home and get online and buy it cheaper.  I've had too many bad customer service experiences with them - won't even step foot in one now.  I can buy electronics at Target, Wal-Mart or Amazon.  It's sad but it's just not electronics stores - customer service is bad in a lot of places which is why companies are going under. 

Aug 31, 2012 1:19PM
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I went to Best Buy and they had a laptop i wanted but it wasnt in stock. They couldnt get one in and I would have had to drive to another store and hour a way to get it. The tried to sell me a laptop for 200 more. Upset I went home got a computer laptop online twice as goos and cheaper than the origional one I wanted and i didnt have to pay shipping. I will never walk back into Best Buy.

Aug 31, 2012 1:18PM
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I still want to view my TV in real life before I buy it.  Unfortunately its not worth going to Best Buy and deal with their worthless staff.  You want help they are too busy playing "grab ****", you want to find something its someone else's job in some other department.  So its off to Sam's Club to me for my next TV I guess.  Radioshack no longer carry the items I need, and Gamestop have idiots that have not clue what I am talking about unless its a majorly advertised game release.  Maybe these stores would not decline so much if it gave better customer service, I gave up on going to them when they quit being helpful. 
Aug 31, 2012 7:13PM
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I use to be a big Best Buy fan since I am a big believer in seeing and talking to a live person when making complicated decisions of rapidly changing technologies.

Between my sons and I we have purchased 4 computers in the last 2 years ... but the last one I ended up buying at Office Depot, because Best Buy had gotten really terrible about helping customers and making themselves available to answer questions.  They had plenty of employees, they just never made an effort to approach customers... and just stood around in corners killing time.  They never used to be this bad about customer service .. and this has happened over and over again - and now they have lost a lot of my business as a result. If you are going to employ all those people - it doesn't cost anymore to make sure they are helping customers rather than goofing off.
Aug 31, 2012 2:22PM
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I was tired of getting my butt kicked by Best Buy just for trying to be a customer.
When they fail completely,  they have it coming.
When giant big box retailers set up adversarial relationships with customers,  they have no one to blame but themselves.


Aug 31, 2012 8:01PM
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I forgot to mention their Geek Squad. Wanted to charge me anywhere between $79 to $129 to look at a computer and possibly fix it. I asked them if I could get my money back if they could not diagnose and fix the problem. Their answer was no. Plus I had to pay in advance.

 

Why would I pay someone, if they could not diagnose or fix the problem. This also included taking the computer into the store and not having them come to my home. I don't mind paying someone for their time, but there are independent computer stores that don't charge what the Geek Squad does to simply look at a computer and give you an estimate.

Aug 31, 2012 1:42PM
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If they want customers they need to provide customer service!! If your not buying a phone at radio shack they won't give you even 2 minutes of attention so screw them. Nothing but untrained morons at bestbuy and you get chased down by stooges trying to sell you dish packages. As laughable as it may sound I've received better customer service at costco!
Aug 31, 2012 8:52PM
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I dislike Best Buy!  , bought a laptop and had the 3 year extended plan took  I was told if it was badly broken I would get a new one 2 years later it broke they told me they fix the old one.instead of a new one.  I showed the warranty and they told me that warranty was discontined I could have bought 3 laptops for the price I paid 2 times burnt, 3 times shy
Aug 31, 2012 1:18PM
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A consumer needs some 'stores' to go to besides online... (we also need the competition to keep prices reasonable...)... Not all online purchases are success stories... as in returns...
Aug 31, 2012 1:11PM
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Best Buy Has ripped people off long enough, "Good Buy, Best Buy!  ADIOS! AMIGOS!  
Aug 31, 2012 1:54PM
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I still prefer to buy my electronics, computer parts or DYI parts at a brick and mortar over internet-tailers. I like the tactile experience of seeing, touching, listening and talking to others who are also looking to buy. The trouble is most of the box stores never have what I want. Or their shelves are empty. It is the this way at Best Buy and lately Fry's. Fry's used to be my fav. But they seem to only get low end computer stuff now for us DYIers. I hate buying a Motherboard online and finding out it is bad after building the whole computer and having to RMA and wait for another. I like just going back to the store to return. Easier. If they all go they will be missed. SHopping online is OK but can never take the place of seeing and touching. OLD SKOOL RULES.
Aug 31, 2012 1:10PM
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MSN has been predicting the 'END' of Best Buy every week for about two years.Dont get me wrong, I dont like Best Buy and dont care whether it fails or not, but how anybody could take financial advice from a site so consitently WRONG is beyond me. Maybe it would be more believable if MSN financial "guru" Jim Cramer was hitting himself with a large inflatable hammer. I doubt it though.

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