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[qi:053] Every holiday season, it’s the same thing: Numbers showing retail sales are disappointing, data showing retail sales are strong, analysts are chasing their tails trying to explain why, and through it all we consumers just keep on buying. So the fact that this scenario is […]

[qi:053] Every holiday season, it’s the same thing: Numbers showing retail sales are disappointing, data showing retail sales are strong, analysts are chasing their tails trying to explain why, and through it all we consumers just keep on buying.

So the fact that this scenario is playing itself out again this year comes as no surprise. What is a little surprising, however, is how much the gap has widened between the haves and the have-nots of the retail sector. This is especially true for stores that cater to gadget fanatics, and the extent of that gap was revealed in recent weeks, when three major electronic retailers reported three very different sets of quarterly numbers: Circuit City, Best Buy and GameStop.

Below is a graph charting the performance of all three companies’ shares in 2007. As you’ll see, the most recent financial results reported by these companies only served to validate the values the market was willing to place on their respective stocks.

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Let’s start with the bottom rung. On Friday, as most of Wall Street was packing up for the year, Circuit City (CC), after posting a widened loss for the quarter ended Nov. 30, saw its shares tumble to a four-year low. And despite the company saying it was “very dissatisfied” or admitting the issues at hand were “primarily self-induced,” on a conference held to discuss the latest numbers, management said nothing about how sales were faring in the crucial month of December.

Far more informative were the comments posted by Circuit City customers on one of the Wall Street Journal’s blogs, the vast majority of which recounted negative experiences. Among them:

“I was attacked verbally by three sales associates for being stupid for not buying the extended warranty….” “The store was a mess, the staff was more interested in the ball game than helping me, and when I presented my web order, the clerk working the computer did not know what to do with it.” “Purchasing puts, shorting shares.”

This isn’t the first piece of dismal news this month for the sector: CompUSA, another store whose image has been hurt by poor customer service, said in the wake of the busiest shopping week of the year that it’s shutting down.

Things are a lot merrier over at Best Buy. Year-to-date, its shares are up 7 percent, a few percentage points better than the S&P 500. And Best Buy posted strong numbers for the most recent three-month period: Its profit climbed 52 percent, beating analysts’ average forecast, which rose in the weeks preceding its report.

Last but certainly not least is GameStop. Its stock, which is replacing Dow Jones in the S&P 500, is up nearly 350 percent this year. The rally has left shares trading at 29 times the earnings projected over the coming four quarters — double Best Buy’s forward P/E of 14, but well below Circuit City’s 159.

What’s going on? With all the gadget blogs, customer reviews and deep discounts offered online, there are increasingly fewer reasons to visit a bricks-and-mortar store and ask a clerk for recommendations. Retailers that can match online discounts, like Costco, are doing fine. That leaves room for a handful of chains, like Best Buy, to carve out a comfortable space.

More successful stores are surviving by offering new reasons for shoppers to visit them. The Internet will never replace the shopping mall completely – but it will challenge chains to evolve. Best Buy’s sales tends to be more responsive than Circuit City’s, but more helpful is that it’s done a good job marketing its practice of letting buyers pick up merchandise bought online at its stores.

Then there’s GameStop. You can read all the video game reviews you want, but there’s no substitute for test-driving a game. GameStop has designed its retail space around that premise. Toward that end, it’s opening “tournament stores” like the 4,000-square-foot space in San Jose, Calif., that will have 24 networked gaming stations with plasma-screen monitors.

GameStop, of course, is taking a page from Apple, whose retail stores draw in crowds year after year. Apple could have followed Dell and sold its products online, but it decided to make its stores an experience that couldn’t be replicated online: not just test-driving the goods, but a theater, workshops and the Genius Bar – all inside stores that often feature innovative design. GameStop and Apple are nudging their stores back to the original idea of the marketplace, where people gather for a shared experience, not just to buy stuff.

None of these retail chains are insulated from the threat of slower sales. Investors are clearly cautious — that much was clear in how shares of both Best Buy and GameStop initially tumbled after they released numbers that included cautious fourth-quarter guidance. But both stocks have since more than made up any lost ground.

Consumers aren’t abandoning retail shops, and they probably never will. They just need newer and better reasons to visit them. The better a retail chain understands this, the better their stocks will perform in the future.

  1. The quickest way for a consumer to abandon a retail shop is due to poor customer service. What I term the Complete Consumer Experience – everything that happens between the moment you walk in the door til you walk out – is completely awful in most cases. Businesses rarely ‘complete the sale’. Sure, they might’ve just sold you a product, but did they sell you on reasons why you should return and do business again? And again?

    It’s likely the experience of the Circuit City customers noted in the WSJ was replicated over and over across the country. The polar opposite occurs in Apple stores. I can’t imagine anyone leaving an Apple store with a ho-hum attitude toward Apple. The store may be crowded, but half the people are Apple employees, doing their darndest to help people discover amazing products.

    You’re right, you must give people a reason to come. Apple does this well. Best Buy’s taking a hit right now due to news about its use of secret in-store websites that reflect higher prices than you’d find at BestBuy.com. Gizmodo’s article here: http://gizmodo.com/337429/best-buy-still-using-secret-in+store-website-with-higher-pricing

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  2. best buy is also a shopping experience. Tons of plasmas video games, music, etc.. Another company that really gets it is whole foods

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  3. [...] tech retail, a mixed bag in 2007, is so far notably less mixed in 2008. Even some of last year’s better performers are [...]

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