Do-or-die time for these four retailers

For Four Retailers, Do or Die

The New Year Has New Urgency for Best Buy, RadioShack, J.C. Penney and Sears

By Ann Zimmerman and Dana Mattioli | The Wall Street Journal – 23 hours ago

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  Getty Images/Getty Images - NAPLES, FL - NOVEMBER 23: Shoppers move through a Best Buy store on November 23, 2012 in Naples, Florida. Although controversial, many big retail stores have again decided to get …more 

RELATED QUOTES

Symbol	Price	Change
BBY	11.51
JCP	19.52
RSH	2.20
SHLD	39.30

While 2013 will be a tough year for retailers due to the tepid economic recovery, a few in particular face a critical 12 months. Their experiences highlight the challenges facing store chains, from increasingly cautious consumers to fierce online competition.

These unlucky retailers are going into the New Year with extra woes: slipping sales, questionable strategies and tight finances—which is why they are the ones to watch, and not in a good way.

Best Buy Co. (BBY) has been plagued by the retail phenomenon called "showrooming," where shoppers examine products in its stores but buy online through rivals. A quarter of shoppers who said they had showroomed had done so at Best Buy, according to a recent Harris Poll, so analysts will be watching to see if it can capture more of those sales on its own website.

J.C. Penney Co. (JCP) has been trying to ditch its image as an old-fashioned department store where Middle America went seeking bargains. But its rapid and radical makeover has left it burning through cash and struggling to attract shoppers, leading to questions about how long the company can afford to stick to its new strategy.

RadioShack Corp.'s (RSH) bet on mobile phones and tablets has backfired. It has sold more of these low-margin devices but is making less money than it did retailing old standards like cameras and computers. Though it staved off a cash crunch earlier this year by suspending its dividend, mounting losses cloud its future.

A man examines a row of washers and dryers at Sears (AP Photo/Julie Jacobson)Sears Holdings Corp.'s (SHLD) sales and profits continue to slide. The 124-year-old department store chain has been shoring up its liquidity by selling itself off in pieces—but some of its remaining assets might be tough to unload when retailing is under pressure.

A closer look at these four companies:

THE SHOWROOM

Hubert Joly, who took the helm of Best Buy in September, has his work cut out for him.

The company is still the largest consumer-electronics seller in the world, with $50 billion in annual revenue. But sales have dropped in eight of the last nine quarters at stores open at least 14 months—and the decline is accelerating.

Best Buy's same-store sales fell more than 4% for the first nine months of 2012, after slipping 2.1% in all of 2011.

The chain's founder, Richard Schulze, is expected to make an offer to take the company private by Feb. 1. The stock has lost 50% of its value in the past year, making a buyout less costly—and perhaps more palatable to shareholders.

But neither Mr. Joly nor Mr. Schulze has articulated a viable strategic fix, analysts say. In a meeting with them in November, Mr. Joly talked in broad outlines about reducing costs, improving staffing levels on weekends, shrinking stores and improving the website.

Fitch Ratings was unimpressed, downgrading the chain's long-term credit default rating to BB- from BB+ with a negative outlook, reflecting the rating agency's skepticism that the company's plan will curb market-share losses and stem profit declines.

One possible bright spot: Best Buy was one of the top three most-visited websites over the Thanksgiving weekend, according to comScore Inc. Best Buy wouldn't comment on whether that traffic turned into sales. That will become clear when the company releases holiday sales results Jan. 11.

THE MAKEOVER

As J.C. Penney heads into its second year of a drastic makeover under Ron Johnson, a former Apple Inc. (AAPL) retail executive, analysts will be watching whether the company can hang on to enough cash to fund the expensive turnaround.

Last February, the new chief executive ended the department-store chain's practice of heavily discounting products through sales and coupons. He also laid out a plan to build 100 boutiques—from Martha Stewart Home to Izod—inside the chain's 1,100 department stores.

But during the first nine months of the fiscal year, Penney's sales fell by $2.7 billion, down 23% to $9.1 billion. More than half of its cash evaporated, to $525 million, as the department store chain racked up $433 million in losses.

Penney said early on that it expected sales to drop while it weaned customers off sales and coupons. But the drop was far steeper than the chain's new managers expected, people familiar with the matter say.

Stopping that sales decline will be crucial to head off a situation in which cash becomes tight. In the year ahead, Penney's sales will be benchmarked against the 20%-plus drop seen this year, so the company will have easier comparisons.

While analysts have expressed concerns about Penney's ability to execute its plan, Oppenheimer analysts said this week that Penney's increasingly promotional strategy is showing evidence of success, lifting the stock Monday.

SENDING OUT AN SOS

Named after a shipboard communication cabin, 91-year-old RadioShack appears rudderless as it heads into the new year. Chief Executive James F. Gooch resigned in September after barely a year in the job; the company only recently filled two senior store operations and marketing posts that had been vacant since spring.

In recent years, RadioShack has focused its growth strategy on selling tablets and smartphones, a category that benefits from stronger demand yet faces competition from online retailers and the wireless carriers RadioShack relies on as partners.

Mobile devices accounted for 51% of $4.38 billion in sales last year, up from 44% the year before. But the company's gross margins continue to shrink, falling 8 percentage points, to 36%, in the 12 months ended Sept. 30.

It racked up big losses in the last three quarters as well, reflecting the smaller profit margins smartphones carry compared with cameras, MP3 players and electronic accessories.

Analysts will be watching to see whether the company can renegotiate a massively unprofitable partnership with Target Corp. (TGT) Operating the mobile phone business in 1,400 Target stores resulted in a $38 million loss for RadioShack in the first three quarters of 20012.

FIRE SALE?

The biggest sale at Sears Holdings next year may be on pieces of its empire.

In recent years, Sears, run by hedge fund billionaire Edward S. Lampert, has made a habit of spinning off its holdings to raise cash and ease investor concerns over liquidity.

With revenue on a downward slope for the past half decade and the company posting a $500 million net loss in its most recent quarter, many wonder what assets the company may unload next.

Last December, Sears completed the spinoff of its Orchard Supply Hardware Stores chain. This year, it separated its Hometown Stores and its Outlet business, netting $446.5 million. In November, the company completed a partial spinoff of its Canadian unit. Also this year, Sears sold 11 of its stores to mall operator General Growth Properties (GGP) for $270 million.

As part of a turnaround, the company has been working to better integrate its online channel and retail stores, and to leverage the millions of customers in its loyalty program. It's started to see some progress, with over 50% of sales coming from members of the program, which Sears launched just two years ago.

Mr. Lampert has suggested that the company may divest itself of Lands' End, a higher-end apparel brand and e-commerce outlet that the company acquired in 2002, if it fails to hit previous earnings levels.

Other possibilities for sales, analysts say, are parts of its large portfolios of retail real estate or proprietary brands such as Kenmore and Craftsman.