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Best Buy Shows There Is Life After Amazon Disrupts You

Investors may be overestimating the threat Amazon poses to the likes of Costco, Home Depot, and Macy’s.

In the past few months, numerous major retailers have seen their share prices undermined by concerns about competition from e-commerce juggernaut Amazon.com.

Costco Wholesale stock plunged after Amazon announced its intent to expand in the grocery business by buying Whole Foods. Home Depot stock fell earlier this month on the news that Sears Holdings would begin selling Kenmore appliances through Amazon. And while Macy’s has been posting poor results lately, its stock price has plummeted in a manner out of proportion to its sales declines.

The example of Best Buy shows that these fears may be overblown. Five years ago, it seemed to many people that Amazon would drive the big-box consumer-electronics giant out of business. Yet Best Buy has found ways to survive and even thrive in the face of competition from Amazon.

Best Buy got knocked down — but survived

In 2012, Best Buy seemed as if it would become one of the first victims of Amazon’s torrid growth. During Best Buy’s 2013 fiscal year — which roughly corresponds to the 2012 calendar year — comp sales fell 1.7% in the domestic market and plunged 7.5% in the international market.

Because of the tough competitive environment, Best Buy’s adjusted operating margin declined to 3% in fiscal 2013 from 4.6% a year earlier. As a result, adjusted EPS plunged from $3.61 to $2.62. These discouraging results caused Best Buy stock to crater, bottoming out around $11 — down by about 75% from late 2010.

Comp sales fell again in both the domestic and international markets during fiscal 2014, leading to another operating margin decline. This seemed to confirm investors’ dour outlook for Best Buy.

Indeed, the company’s revenue has never recovered from these setbacks. Still, in the past few years, Best Buy has managed to stabilize its revenue and rebuild its operating margin. As a result, the stock has soared, briefly hitting a new all-time high above $60 earlier this year.

How Best Buy came out alive
Compared with the likes of Costco Wholesale, Home Depot, and even Macy’s, Best Buy didn’t have much going for it in competing with Amazon. Costco has unbeatable prices, because of its focus on selling huge quantities of a relatively small selection of items. Home Depot and Costco both sell a lot of bulky items that are tough to sell online profitably. Meanwhile, Macy’s and Home Depot both carry lots of items that customers want to see or try before they buy.

By contrast, with the exception of its appliance business, Best Buy mainly sells products that are ideal for e-commerce disruption. Consumer-electronics products typically have a fairly high value relative to their size and weight, so shipping costs aren’t prohibitive. Meanwhile, Amazon can often sell the same products Best Buy carries in its stores.

Best Buy fought back by offering to match competitors’ prices, including those of Amazon. As a result, customers who wandered into a Best Buy store to look at merchandise no longer had any reason to order from Amazon rather than making a purchase then and there.

Some analysts thought price-matching would destroy Best Buy’s profit margin. The company headed off that concern by implementing a broad-based cost-cutting program. It also pulled out of international markets where it was struggling.

As a result, Best Buy’s revenue has fallen below $40 billion, compared with more than $50 billion at its peak. Nevertheless, its operating margin rebounded to 4.7% last year — the company’s best result since fiscal 2011 — driving strong earnings growth. Analysts expect further EPS growth this year and next year.

A buying opportunity?
Between 2011 and 2016, Amazon.com nearly tripled its sales, from $48 billion to $136 billion. Revenue is still growing more than 20% annually despite Amazon’s massive size. Amazon is thus capturing a huge proportion of the growth in retail sales, at least in the United States. This development will clearly affect a wide swath of the retail universe.

Nevertheless, Best Buy’s resurgence over the past five years shows there is hope for companies that lead their respective industries — such as Costco Wholesale, Home Depot, and Macy’s.

Home Depot and Costco are still generating strong comp sales growth, which suggests that they may be more immune to competition from Amazon than some investors believe. But even if they do eventually face greater pressure on sales, Best Buy’s example shows that they could continue to produce strong earnings by committing to keep costs down.

As for Macy’s, many investors seem to think the department-store giant is doomed, because it’s set to report a third straight year of declining sales in 2017. However, if Best Buy could come back from several years of falling sales and plunging margins, there’s no reason Macy’s can’t do so as well.

fool.com

A Mystery

They are al the same!

Lori Greer in Portland

Maybe you can explain this to me.

I rise early to take my dog Ginny for walks before the temperatures rise.

I have a floor fan that she sleeps in front of most of the day and evening.

So, why when we are outside does she lie in the sun rather than the shade?

After all, she’s the one with the fur coat!

20170811_115706 Lunch on the patio.  Lots of shade!

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Sneaking Around–Demi Monde:

By the Mighty Mumford

Wasn’t feeling it this day – I hurt my foot the day before, having stood on something sharp in the yard (I’m guessing a stray bougainvillea branch) and spiking my heel. Was very painful for the entire next day, hence the sneakers! #demimondestyle Outfit: Lemon sweater featuring bracelet length sleeves and polo neck collar, worn […]

via Sneaking Around — Demi Monde

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Why Roads Are Often Crowded And Trains Are Not

ntbraymer

By Noel T, Braymer

The reason isn’t what you think it is.

From almost the time cars were first sold, there has been complaints that there weren’t enough roads. With this came the belief that if only more roads were built and current roads expanded then traffic congestion would go away and everyone would be happy. But this has yet to happen. The fact is as more roads are built, traffic continues to grow and get worse. Called induced demand, the more places people can drive, the more people will drive. But when there is less road capacity, traffic congestion goes down. A good example of this was the expansion of the 405 freeway between Westwood in west Los Angeles to Ventura Blvd in the San Fernando Valley through the Sepulveda Pass. Over the weekend starting on the evening of Friday July 15, 2011, the 405 was closed through the…

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“The Public Be Damned!”

ntbraymer

By Noel T. Braymer

I was thinking about this famous quote recently which I knew was from a 19th century railroad baron. With help from Wikipedia I discovered it was a quote from the Chicago Daily News in 1883 from an interview by reporter John Dickerson Sherman with the then president of the New York Central Railroad William Henry Vanderbilt. The question to Mr. Vanderbilt was “Do your limited express trains pay or do you run them for the accommodation of the public?”. Vanderbilt replied, “Accommodation of the public? The public be damned! We run them because we have to. They do not pay. We have tried again and again to get the different roads to give them up; but they will run them and, of course, as long as they run them we must do the same.” Well this was an honest answer but in today’s parlance a PR…

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Thursday Doors – Railroad Doors

No Facilities

Main doors to the station.

If I know my regular readers, they’ve been expecting this post. Initially, I thought I’d hang on to it until winter and surprise you with a blast from the past set of bright sunny summer doors. I can’t. I just can’t. I see these photos in my folders and I just want to share them.

I am pretty sure that I’m not the only blogger who struggles with wanting to write a blog post about an event or a place, but also wanting to show off the door photos that were collected. It’s made even harder now that our loved ones, our friends and even some of our coworkers are looking out for doors for us. Each significant visit generates two posts. The good news is that, since the story about New England Railway Museum was recently told, I can let you off the hook…

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St. Joseph, MI (History)

great story!

History Present

Lighthouse St Joseph, MI North Pier Lighthouse

Back in June, I made a business trip to St. Joseph, MI. Since I had never been to St. Joseph, I checked it out before I left. What a great little town! There are many things to do, both in St. Joseph, and in the immediate area. The town boasts an Art Museum, a Children’s Museum, a lakefront beach, a beach park, and a vibrant food and drink culture. St. Joseph’s beachfront, restaurant, and shopping area is concentrated in a small area. Everything is easily within walking distance.

After I shared what I had learned, Mrs. Present decided to accompany me. We left a few days early so we could experience the town together. Once I began my work schedule, Mrs. Present was forced to sit on the beach, eat real ice cream, and read books. Poor her! St. Joseph is a town that…

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What Can Mr. Anderson Do To Turnaround Amtrak?

Great ideas on Connecting “Flights” (plus leasing)

ntbraymer

By Noel T. Braymer

Richard Anderson is the former CEO of Delta Airlines who has agreed to a six month training period to learn how Amtrak is run, before he takes full control as Amtrak’s President next year. The question I have is what in Mr. Anderson’s long experience in the airline industry that prepares him to make a major impact at Amtrak? The number one challenge at an airline, or any business is increasing sales, while controlling costs. At the heart of any airline is the desire to fill all the seats on a plane with paying passengers on every plane before it takes off. For airlines an empty seat on a plane when it takes off is money lost. It is akin to a store throwing out perishable goods which is a loss on the balance sheet. Not only do airlines want to fill seats on their planes…

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Great History from Mark Tomlonson

Highlights of Marc Tomlonson’s great days in NY Central History.

July 5, 1915 The New York Central sells the Nickel Plate to the van Swearingen brothers. NYC fears that because much of NKP’s track parallels NYC’s, NYC could be liable for prosecution under anti-trust laws. Read a great story on the Van Swearingen Brothers.

July 3, 1948 The New York Central issues a report that only 20 per cent of its long-distance passenger trains are diesel powered, but the number is expected to rise to 50% by year’s end. By August 1953, steam was out of Lines East. NY Central moved fast. May 2, 1957 Last steam locomotive operates on the New York Central as 2-8-2 Class H -7a 1977 drops its fires at Riverside Yard in Cincinnati.

June 30, 1908 Last day steam trains could legally operate south of the Harlem River in New York City.

July 1, 1900 The New York Central & Hudson River Railroad leases the Boston & Albany for 99 years. Within 99 years, both were gone.

July 1, 1958 The New York Central withdraws from The Pullman Company and begins staffing its own passenger trains.

June 29, 1956 From his bed in Walter Reed Army Hospital, President Eisenhower signs the legislation creating the Interstate Highway System, 90% of the cost to be paid by the Federal government. The creation of this high-speed road network will profoundly change the shape of America, including the demise of intercity passenger traffic and less than car load and other types of freight on the nation’s railroads. Anybody remember anything Ike did for railroads?

June 27, 1960 Demolition of the Grand Central Terminal office building begins to allow construction of the Pan Am Building. Both NY Central ad Pan Am are gone……Grand Central remains.

If We Were Having A(nother) Beer

No Facilities

This visit to the bar is also part of Linda G. Hill’s fun weekly series, Stream of Consciousness Saturday. Yours truly is filling in for Linda today, and our assignment was:

Your Friday prompt for Stream of Consciousness Saturday is: “ooooh, aaaah,”. Use it as a phrase, or break it apart. And since I love bonus points, bonus points if you somehow manage to start and end with all or part. That’s about it, oh yeah, I almost forgot – Enjoy!

“Ooooh, just the man I was hoping to see.”

“Was this in doubt? I mean, I’m usually here on Saturday.”

“Well, you’ve been mixing it up a lot, I thought maybe you were changing your routine.”

“Dan? Change his routine? $10 says he asks me for a Yuengling.”

“No bet, Cheryl, he is a creature of habit.”

“I am, and I will have a Yuengling, and I don’t…

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