Commentary

Rung At A Time For Best Buy, Penney, Kodak

Every once in a while you see someone write a variation of “even Google/Apple/Amazon/Facebook won’t be around forever” and you wonder how could that be? Sure, there have been gaffes, but they remain innovative companies and dominate mindshare in their categories.

And then brands such as Best Buy, Kodak and J.C Penney, all of which seemed to be invincible themselves not too long ago, come to mind. All three of them were in the news yesterday, if on decidedly different rungs in their efforts to climb out of the deep pit of looming irrelevancy.

The hed on Tom Gara’s “Corporate Intelligence” item in the Wall Street Journalreads: “Best Buy’s Momentum: From Amazon Roadkill to High Riser in 12 Months.” Indeed, its “shares jump[ed] 13% as profit surge[d],” as USA Todayput it. Gara attributes Best Buy’s “getting its mojo back” not only to its cost-cutting, retraining of staff and modernization of its stores but also to CEO Hubert Joly embracing showrooming rather than just bemoaning the practice.

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“Once customers are in our stores, they're ours to lose,” he said late last year.

“At this point, Joly is simply better managing the decline,” Bloomberg’s Megan McArdle suggests in a more skeptical piece titled “Best Buy's Last Hurrah?” His drastic cost-cutting “may clear the way for a fruitful next stage,” she writes. “But there’s always a risk, with these sorts of moves, that you will deeply damage the brands and the human capital that you need to carry you forward.”

Sales at stores open at least a year declined 0.6% but online sales increased 10.5% “due to increased traffic and a higher average order value,” according to its release on second-quarter earnings.

Belus Capital Advisors CEO Brian Sozzi sees more positive developments to come: “The sales number is even more impressive considering Best Buy's entirely new website won't launch until 2014, leading me to believe that price matching (see yesterday’s "Top of the News"), and advertising of price matching, is closing the price perception gap with Amazon," he writes. 

J.C. Penney’s new management team “wasn’t shy about throwing the old Ron Johnson-led group under the bus -- and then backing over them,” write the Wall Street Journal’s John Shipman and Suzanne Kapner in reporting disappointing results for the retailer’s second quarter. “The culprit: The home remake that was one of the former Apple Inc. executive’s marquee projects before he was ousted this spring,” they continue.

Same store sales fell 11.9%. “Sales figures were ugly as well. Net revenue fell 36% to $2.66 billion, considerably less than analysts’ forecast for $2.8 billion,” reportsForbes’ Abram Brown, who nevertheless manages to see “signs of life” including the retailer's optimism about back-to-school shopping and a strengthened balance sheet. 

Returned-CEO Mike Ullman was “upbeat and hopeful” overall during a conference call, reportsFortune’s Hibah Yousuf -- but not unrealistic. 

“We have a lot of work to do to regain the trust of our customers,” Ullman said. “To bet the ranch on a wild return to growth in a specific and short time period wouldn't be prudent.”

Kodak, meanwhile, which once seemed the corporate embodiment of “makes you think all the world's a sunny day,” as Paul Simon’s “Kodachrome” lyrics had it, was given a green light to “reinvent itself as a much smaller company focused on commercial and packaging printing” yesterday, reports NPR’s Doreen McCallister.

Its plan to exit Chapter 11 after 20 months was approved by U.S. Bankruptcy Judge Allan Gropper in Manhattan, “affirm[ing] Kodak’s move away from cameras, film sales and consumer photo developing, which made it a household name,” as Bloomberg’s Erik Larson writes. It has “shed 47,000 employees since 2003, closed 13 factories that made film, paper and chemicals, and shuttered 130 photo laboratories,” he reports.

Kodak “failed to obtain significant value for its portfolio of patents,” Reuters’ Nick Brown reports, “which experts said was a crucial reason it had to sell core businesses and reinvent itself. But the bankruptcy resolved a major dispute with retirees over pensions, and it has forged a restructuring plan that, while wiping out shareholders, should pay secured creditors and second-lien note holders in full.”

Kodak will also develop touch-screen sensor components and continue producing film for Hollywood.

Even before digital photographing made films like Plus-X -- once a staple of photojournalists but now discontinued) -- irrelevant, Kodak was under immense pressure from Fuji Photo Film, as Edward W. Desmond reported in a 1997 article in Fortune. But, he pointed out then, “the company still overwhelmingly dominates the $2.7 billion U.S. amateur film market. The Kodak brand remains solid gold, and its quality is not in dispute.”

And it had plans to compete digitally as well. How quickly the marketplace exposes undeveloped strategies. 

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