Seeking Alpha: GOME's Realism On Electronics Retailing Still Not Fully Appreciated

GOME Electrical Appliances (OTCPK:GMELY) has been called China's Best Buy (BBY) in the past, even though the comparison can get a bit stretched at times. Where Best Buy is estimated to hold about 30% share of the U.S. electronics and appliance retailing market, GOME is #1 in China in consumer electronics with about 10% share. Even so, both companies had a period of serious turmoil as "growth for the sake of growth" created an inefficient store base and online competition made serious inroads into their businesses.

Whether you believe Best Buy's turnaround plan is working and will continue to work is a story for another day. What I want to focus on today is the strategic shift at GOME that has led to improved same-store sales and the way in which management views the evolution of competition and retailing in China. I believe that GOME is correct in its view that success will ultimately come down to a battle of logistics, and I think the company is ahead of its rivals in building for that reality. I do not believe that GOME will ever generate sizable FCF margins, but I do believe that modest improvement, coupled with supply chain investments that will help the company maintain its competitiveness, support a fair value almost 50% above today's level.

As a quick aside, I would encourage investors who are considering GOME shares to buy the Hong Kong-listed shares if possible (0493.HK). I realize that it can be more expensive to do so, but the liquidity on the ADRs is not very good at all.

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GOME's Realism On Electronics Retailing Still Not Fully Appreciated

Seeking Alpha: Even Near A 52-Week High, Investors Expect Little From Home Retail Group

Imagine a combination of Service Merchandise, Best Buy (BBY), and an overgrown ACE Hardware (or shrunken Home Depot (HD)) and you get into the neighborhood of what the UK's Home Retail Group (HMRTY.PK) is about. Combining Argos, a former trading stamp and catalog retailer that has transformed into a multichannel retailer, and Homebase, a home/garden-focused home improvement chain, Home Retail is a share leader in many parts of the UK retail market.

Home Retail Group is not a particularly popular stock in some respects. The shares are up more than 70% this year, but down 10% over the past five years and the shares trade at levels that suggest minimal growth and near-constant erosion to Amazon (AMZN) on an ongoing basis. Although I don't want to suggest it's smooth sailing from here on for Home Retail, I think the company's ability to drive online sales at Argos is encouraging and I believe even modest success from here on could drive worthwhile returns.

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Even Near A 52-Week High, Investors Expect Little From Home Retail Group

Investopedia: A Solid Beat-And-Raise As Lowe's Closes Some Of The Gap

While neither Home Depot (NYSE:HD) nor Lowe's (NYSE:LOW) were exactly what I thought of as “cheap” a quarter ago, I did think Lowe's looked like the better buy as I believed the Street would start factoring in improving operations and more HD-like performance. That call seems to have worked out, as Lowe's shares outperformed Home Depot by nearly 15% over the last quarter. As Lowe's still looks cheaper than Home Depot and has more upside to operational improvements/outperformance, I would probably stick with Lowe's over Home Depot, but almost anything house-related in retailing seems strong these days.

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Investopedia: Plenty Left To Do, But Signs Of Progress At Best Buy

I know that the skeptics on Best Buy (NYSE:BBY) are going to look at Tuesday's results and ask “What recovery?” After all, comps are still declining and gross margins are still down on a year-over-year basis. What's more, the apparent erosion in high-end mobile demand is a sizable threat to a company that gets a lot of revenue from mobile devices. On the other hand, nobody should have believed that Rome would be rebuilt in a day, and Best Buy continues to deliver on multiple points of its recovery plan.

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Investopedia: After A Big Rally, It's Up To Renew Blue For Best Buy

It wasn't so long again when the buy/avoid decision on Best Buy (NYSE:BBY) came down to the relatively simple discussion of whether you thought the company would be able to stabilize and continue on (with zero growth) or perpetually decline. With the shares up almost 50% from last year and 100% from the late December 2012 lows, now the question has shifted to how much growth the company's restructuring efforts will produce.

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Investopedia: Home Depot Continues To Rack Up Impressive Numbers

When a company finally gets its operational ducks in a row, the performance can be impressive. Couple that with a rising tide of improving underlying conditions, and the performance can be exceptional. That's the basic thesis on Home Depot (NYSE:HD) these days, as operational improvements started years ago are really bearing fruit and the company is starting to see the positive impact of improving housing markets.

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Investopedia: Samsung Stores A No-Risk Opportunity For Best Buy

Give credit to Best Buy (NYSE:BBY) – the company is not going down without a fight. While there are still ample concerns about whether there's life in big-box electronics and appliance retailing, Best Buy is trying to find ways to rejuvenate the stores. Even in the absence of a buyout led by founder Richard Schulze, the stock has rallied back to a 52-week high on optimism about these moves.

The latest move is an interesting one for the company – the launch of a “store within a store” concept with Samsung, the other 800-lb gorilla of the smartphone and tablet market. Although these mini-stores are unlikely to significantly improve overall sales for Best Buy, they could be good for margins and could point to a new direction in big-box retailing.

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Investopedia: The Erosion Of Best Buy Continues

Another quarter is in the books, and there's scarcely any good news at struggling retailer Best Buy (NYSE:BBY). While there is still a chance that founder Schulze will come back with another go-private bid, the fact remains that comps continue to erode and the electronics brick and mortar retailing landscape is a grim one. With Best Buy's management talking about wooly concepts like "reinvigorating the customer experience," investors would do well to approach this turnaround candidate with considerable caution.

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Investopedia: Home Depot Chooses Profits Over Empire Building

Although not everything that home improvement superstore operator Home Depot (NYSE:HD) has tried worked, management deserves credit for being ready with a quick hook when it seems clear that an idea just isn't going to live up to expectations. That seems to be the case with the company's plans for China, as management has announced that it will be closing its remaining big box stores in China and shifting to a strategy of specialty stores and e-commerce.

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Investopedia: Should Best Buy Shareholders Take The Money And Run?

I don't believe it surprised anyone when the board at Best Buy (NYSE:BBY) didn't exactly leap for joy at the receipt of a go-private bid from Best Buy's founder (and largest shareholder) Richard Schulze. Likewise, I'm not sure many investors will be surprised that the company once again posted a very disappointing quarterly financial performance. Now the question turns to whether shareholders should give newly hired CEO Hubert Joly a chance to work his turnaround magic, or take Schulze's money and move on to new opportunities.

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Investopedia: Best Buy Gets Its Bid

Back in June, I wrote an article that suggested Best Buy (NYSE:BBY) could see itself the target of a go-private bid from founder Richard Schulze, particularly after he stepped away from the company. Rumor and speculation became fact on Monday, though, as Richard Schulze formally launched a bid that values the company's outstanding shares at $24 to $26.

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Investopedia: Why Is Walmart Evil, But Amazon Isn't?

If you really want to generate some hate mail, say something nice about Walmart (NYSE:WMT) in a public forum. According to the critics and self-appointed guardians of America's conscience, Walmart is an evil company that kills American business (by sourcing from overseas), kills American retail (by undercutting other retailers on price) and kills the American worker (by offering low wages and benefits). What's interesting to me, though, is how Amazon (Nasdaq:AMZN) gets none of this hate. While Amazon and Walmart are in many respects using the same model (offering customers the lowest prices available), you garner no shame, opposition or lectures in boasting about being an avid Amazon customer. So why is it that Amazon is "good," but Walmart is "evil?"

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Investopedia: hhgregg's Struggles Suggest Best Buy Could Be In Big Trouble

For all of the debate and discussion about what ails Best Buy (NYSE:BBY) and whether this large electronics and appliance retailer has a future, it's worth observing that times are just as bad (if not worse) at hhgregg (NYSE:HGG). While investors shouldn't draw straight lines between the two companies (hhgregg is much more focused on appliances and TVs), the fact remains that consumers are holding back on big-ticket spending and this does not bode well for the retailers.

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Investopedia: Could Best Buy's Founder Take The Company Off The Market?

Electronics retailing giant Best Buy (NYSE:BBY) badly needs stability, and that seems to be exactly what the company is not getting. The company is still looking for a new full-time CEO, preferably one with experience in turning around a retailer, and now the company's founder is stepping away from the company. Now board chair and founder Richard Schulze has elected to step away from the company entirely, instead of staying on the board for another year as had been planned.

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Investopedia: Best Buy's Problems Can't Be Fixed With A Good Quarter

Making money has a way of patching over differences, but investors would do well to approach Best Buy's (NYSE:BBY) "outperformance" in Q1 with a healthy dose of skepticism. Not only are the fundamentals here still pretty dodgy, but the company has only a limited window to get its retailing act together. Although I believe the current price on Best Buy shares is below most coherent down-side scenario fair values, retail turnarounds are tricky and investors ought to demand a substantial discount before taking their chances on this stock.

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Investopedia: GameStop Is In Decline, But The Rate Is Still Up For Debate

I won't beat around the bush - I don't think GameStop (NYSE:GME) has all that much of a future as a retailer focused around game consoles and software. There just isn't enough hardware business to support the enterprise, and I see the ongoing march of digital gaming eroding that lucrative used game business. None of this is new; this has been the GameStop bear thesis for a while. The question, though, is whether GameStop's business strategy points to a slower-than-expected decline and whether there's still value in the shares.

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Investopedia: Best Buy Hits Reset Again

The Best Buy (NYSE:BBY) saga continues to twist and turn, with the latest development being the surprising resignation of CEO Brian Dunn. While this sort of major shake-up may be seen as yet another distraction and setback for a company struggling to find a new foothold in the electronics retailing world, the downside seems pretty limited. At this point, the market continues to price Best Buy for failure and shareholders may have reason to hope that the company can use this opportunity to make a clean break with a failed approach.

A Change at the Top
While now-former CEO Brian Dunn had a reputation as an operations-minded executive, it's hard to see how that did the company any good. Under his leadership, the company continued to over-expand and ignore the fact that online retailers like Amazon (Nasdaq:AMZN) and Wal-Mart (NYSE:WMT) had already sapped their walls. Just as bad, Best Buy seems to have plunged headlong into China without really understanding the market or how to compete with other rivals like Gome.

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Investopedia: Balancing Skepticism And Opportunity On GameStop

I have not been shy about my lack of faith in the durability of GameStop's (NYSE:GME) business model. That said, one of the worst mistakes any investor can make is to just past judgment on a company, assume you will always be right and never re-examine the story or your own assumptions. When I look at GameStop, I still see a lot of problems, but I also see how the stock may well be something of a value today.

Rehashing the Old
My original (mostly negative) thesis on GameStop ran something like this. Used game sales are a major component (more than 40%) of gross profit and the ongoing expansion of digital distribution by Electronic Arts (Nasdaq:EA), Activision Blizzard (Nasdaq:ATVI) and Take Two (Nasdaq:TTWO) should shrink that pipeline. Moreover, it wouldn't shock me to see a company like Best Buy (NYSE:BBY) at least entertain the idea of competing in that space, in an attempt to drive store traffic.


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Investopedia: Can Best Buy Find A Relevant Model?

Circuit City? Gone. Borders? Gone. Linens 'N Things? Gone. CompUSA? Gone (though the brand was acquired out of bankruptcy and lives on). So, Best Buy (NYSE:BBY), how ya feeling? Any fever, chills or loss of appetite? With plenty of analysts and commentators fighting over the shovel and the privilege of throwing the next scoop of dirt on its grave, it may surprise some to know that it hasn't actually fallen over. The question, though, is whether the failure of Best Buy is inevitable, preventable or altogether unlikely. (For related reading, see The 4 R's Of Investing In Retail.)  

A Bad Holiday Season?
Best Buy has already announced that U.S. same-store sales were slightly negative for the 2011 holiday season. There was poor performance in gaming, digital imaging and TVs, and solid sales in phones and appliances could not compensate for it. So, once again the question arises as to whether Best Buy can drive sales without deep discounting and whether its business model can withstand high discounting.


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Investopedia: Best Buy Gets Run Over By A Reindeer

For a company that finds itself needing to validate its big-box model and avoid going to the same elephant graveyard as Borders and Circuit City, Best Buy (NYSE:BBY) has certainly stepped in it again, and this time right before Christmas. Several news outlets, including the Wall Street Journal and PCMagazine, are reporting that Best Buy has been unable to fulfill online orders made in the weeks following Black Friday and has instead canceled these orders.

Too Popular for its Own Good?Unfortunately, Best Buy has said almost nothing publicly on this issue apart from an emailed statement to a FOX affiliate in Minneapolis, but from what information is out there, it seems that unexpectedly high demand and supplier shortages have led the company to cancel online orders made in the past few weeks. Looking through message boards and online forums at both Best Buy and shopping websites suggests that it's not a complete disaster and largely limited to items like the Sony (NYSE:SNE) PlayStation and Fujifilm AX-350 camera. Even still, Best Buy was hardly proactive about this and it looks like there are going to be some supremely irritated and newly-former Best Buy shoppers this holiday season. (For related reading, see The 4 Rs Of Investing In Retail.)

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