Electronics retailers have had a rough few years, with a weak macroeconomic environment, increasing competition and unfavorable product pricing trends. Companies like Best Buy Co., Inc. (NYSE:BBY) and RadioShack Corporation (NYSE:RSH) have seen their share prices drop significantly over the past year, but will electronics retailers eventually recover?

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Failure to Adapt to Trends
Best Buy is perhaps the most commonly cited sign of problems for the retail electronics industry currently, with a stock that has fallen more than 40% in 2012 and more than 70% over the past three years. While there have been strong gains in mobile phones and appliances, these have been largely offset by weakness in consumer electronics and entertainment products.

Recently, the company highlighted a number of key issues facing the industry in its second quarter 10-Q filing with the SEC:

  • Macroeconomic Issues - The economic crisis in the E.U. and the economic slowdown in China have led to lower same-store sales declines during its Q2 2013. Consumer spending has been on the decline in these regions since 2008.

  • Product Convergence - Digital imaging products, like compact cameras and camcorders, have seen dramatic sales decline due to convergence with smartphones, while televisions are experiencing a similar decline due to new tablets and laptops.

  • Product Life-Cycle Declines - Canada continues to face product life-cycle declines in gaming, notebooks and televisions, which were only partially offset by growth in tablets and mobile phones, leading to lower same-store sales in the region.

  • Increasing Competition - Increasing competition in Europe has led to lower pricing and margins, but on a more secular level, online sales continue to eat into retail market share - particularly in the consumer electronics industry. E-commerce in particular remains a long-term concern.

While e-commerce sales only make up 5.2% of total retail spending, total revenues grew 17.3% during the third quarter of 2012 to reach $56.99 billion, according to the United States Department of Commerce. Meanwhile, consumer electronics' portion of these sales is projected to continue rising from 21.6% in 2011 to 22.2% in 2016, according to eMarketer.

Different Strategies, Different Results
Best Buy may be suffering from a number of adverse trends that should be analyzed, but there are other electronics retailers that have been seeing a lot of success. Conn's Inc. (Nasdaq:CONN) has seen it shares rise more than 150% in 2012, by shifting its focus to furniture and mattress sales that have benefited from the rebound in the U.S. housing sector.

Others remain at an earlier stage of a potential turnaround. After booting CEO Jim Gooch, RadioShack is reducing its U.S. store count and diversifying into overseas markets. In particular, the company's joint venture agreement with Hon Hai - or Foxconn (OTC:FXCNY) as it's better known - could help jump start its expansion in Asia. Meanwhile, the firm remains in negotiations with regards to its Target Kiosks.

Best Buy itself has also has adopted a sleeker retail strategy and focused on bolstering its online efforts in moves that it hopes will jump start its sales. But, analysts remain concerned about intense competition from Amazon.com Inc. (Nasdaq:AMZN), eBay Inc. (Nasdaq:EBAY) and new retail stores coming online like Target Corporation (NYSE:TGT).

The Bottom Line
The retail consumer electronics industry continues to struggle from many headwinds. Best Buy is likely to continue to struggle with its sales, but RadioShack's move abroad could help turnaround its troubled stock. Meanwhile, Conn's smart diversification will help it ride out any turbulence in the market and perhaps become stronger with fewer competitors down the road.

So, how can investors play these trends? Conn's has been a strong performer, but its stock trades with a price-earnings ratio above 50 times, suggesting that investors may want to consider writing covered calls as a way to lower risk. But, investors looking into riskier turnarounds like RadioShack's may want to consider LEAPS as a way to capitalize on upside with less upfront.

At the time of writing, Justin Kuepper did not own any shares in any company mentioned in this article.

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