Hey Retail, Management Matters

 | Dec 17, 2013 | 2:30 PM EST  | Comments
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Stock quotes in this article:

bby

,

hgg

This year the dark horse in retail was the consumer electronics space.

Best Buy (BBY) and hhgregg (HGG) woke up from life support. After real concerns that consumer electronics big box retail would even survive, BBY is up 240% and HGG is up 94%

Here is the interesting part about these 2013 retail leaders. Sales and margin gains were not even part of the story. Best Buy put up positive comps last quarter for the first time in three years, but will end the year with a flattish comps. Gross margins will also be down for the year to the tune of 100 basis points. HGG comps were mid- to high-single digit negative in ¾ of the previous quarters. For CE names, the simple realization that the space will survive (maybe with a much smaller footprint) and some serious cost cutting, was enough to catapult stocks.

Best Buy's new management team is teaching retail a very important lesson in 2013: management matters. If the old team stayed in place and BBY fell by the wayside, we would have blamed it on the business. Turns out this tough business is survivable after eliminating the internal weak links (take note Sears (SHLD), J.C. Penney (JCP), Abercrombie & Fitch (ANF)).

This year was about stabilizing the business at BBY. For example, TVs stopped declining after years. Online is moving in the right direction (that was an internal execution issue). Price matching and training in the stores has helped stem the market share bleed to Amazon.com (AMZN). Finally, the new management team unloaded the losing distraction of the European business. While earnings were driven by a cost cutting story in 2013 investors may need another leg in 2014.

The big question is what BBY needs to do in order to officially check out of the sick ward. The good news is there is still plenty left to do on the cost side. And while further cost cutting won't get it done alone, unloading the China distraction, continuing to shrink the online conversion rate spread with Amazon and improved training (yes, even on Black Friday the staff was outstanding) might start to move that revenue needle.

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