best-buy-black-friday

Can Best Buy serve as a model for struggling retailers?

Best Buy’s well-documented decline two years ago, and subsequent rise from the ashes over the past 12 months, is shaping up to stand as a model for other retailers that find themselves in freefall.

best-buy-black-friday

According to a recent Forbes article, Best Buy’s stock is up 250% from a year earlier and took a commanding lead coming out of Black Friday. So what’s in their secret sauce that has given them a second chance?

From the article:

Best Buy’s comeback is a beacon of hope for other struggling retailer’s, but very few will enjoy the same fate.

For everything that was going wrong inside of Best Buy’s stores, the market environment outside has been exceedingly friendly in 2013. Retail and consumer IPOs have been hot, stocks at large are enjoying their best year in over a decade and even issues like a government shutdown this fall did nothing to derail the rally.

All that helps explain why Best Buy has tripled even though it is still grappling with the challenges of a retail turnaround. While 2014 may be another winning year for equities, few expect it to be as explosive, which will be a hurdle for any retail stock looking to repeat Best Buy’s trash to treasure revival.

JC Penney may have looked like a tempting possibility after the department store chain touted a 10.1% increase in same-store sales for November. Though the increase was likely thanks to hefty discounting, positive comps is a critical element in buying the retailer time as it moves on from Ron Johnson’s failed effort to remake its image.

A brief rally was cut short though, and the news since has not been good. Hayman Capital’s Kyle Bass told Bloomberg his hedge fund has fully exited its stake and the company also revealed a SEC inquiry into its September capital raise, which came shortly after CEO Mike Ullman dismissed talk of the need for more capital.

The challenge in betting that retailers are doomed is that they tend to go bankrupt very slowly, then all at once. So a key component to the recipe for a big comeback is liquidity. JC Penney may be in decent shape thanks to the September capital raise, but even positive comps from a poor 2012 holiday season might not be enough to change the mood around the chain.