Can J.C. Penney and Best Buy Dig Their Way Out of This Hole?

As the beleaguered economic recovery and stiff competition from Internet retailers continue to bring down sales and weigh down balance sheets for brick-and-mortar retailers, 2013 is shaping up to be a year of critical importance for J.C. Penney (NYSE:JCP), Sears (NASDAQ:SHLD), Best Buy (NYSE:BBY), and RadioShack (NYSE:RSH). According to the Wall Street Journal, it will be “do or die” for these retailers over the next 12 months.

What are the challenges ahead?

Best Buy has seen its shares lose 50 percent of their value in the past year as the practice of showrooming has dragged down same-store sales. Electronics shoppers are increasingly using the retailer’s stores to examine and test products before purchasing them from cheaper Internet companies like Amazon (NASDAQ:AMZN), and this tactic has contributed to a drop in same-store sales of 4 percent in the last nine months. At a November meeting with investors, the company’s new Chief Executive Officer Hubert Joly outlined a plan to reduce costs, shrink stores, and improve its website that was met with skepticism from shareholders, who believed that the measures were incomplete. The offer to take the company private, which Best Buy’s founder Richard Schulze is expected to make on February 1, seems like a more viable option to shareholders, according to the Journal.

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Similar pressures are affecting RadioShack. Despite turning its retail focus from cameras and computers to tablets smartphones, products which benefit from a stronger demand, the electronics seller has suffered from online competition as well. Mobile devices represented 51 percent of the company’s $4.38 billion in sales in 2011, but its gross margins continued to drop. For the 12-month period ended on September 30, RadioShack’s margins fell 8 percentage points to 36 percent. Partnering with Target (NYSE:TGT) to operate its mobile phone business in 1,400 stores was not any more profitable; RadioShack posted a $38 million loss in the first three quarters of 2012.