New Gains Offer Hope to Hopeless Retailers

Even the downtrodden can benefit from a good show, and this year's retail performance is looking like it might lift spirits across the board. Certainly, the previews are looking fantastic, and each week seems to bring another bit of good news, buoying hopes for huge crowds and record sales. On Monday, the Department of Commerce added to the good news with another increase in monthly retail sales, recording the biggest gain since late 2010. Here are two companies that have had a rough year, and could use a solid Christmas boost.

The struggle in-store
Retail sales increased 1.1% from August, which saw a 1.2% increase from July. Compared to last year, September sales were up 5.4%, which comes as an immense relief after the falls that we saw earlier this year. Retail sales fell from April through June before recovering in July. Now it looks like consumers are going to put on an excellent show for Christmas, and retailers are ready to do their part.

Last week, Best Buy (NYS: BBY) announced that it would match online retailers' prices. The company has been fighting the idea that it's become nothing more than a showroom for (NAS: AMZN) customers. Recently, it has been dismissive of the impact that online retailers have had, but this move seems to signal that the company isn't entirely sure customers aren't walking out the door in droves. The hope with the new price-match system is that it can convert more visitors to paying customers. The Wall Street Journal reported that the company's current "close rate" is around 40%.

But the chain is going to have to watch out if it wants to actually make money this Christmas season. Over the last four quarters, Best Buy has only averaged a 1.3% operating margin, and last quarter, it didn't even hit 1%. If it's planning on selling even more merchandise at a discount, while still paying employees to staff its stores, investors could be in for a headache no matter how good top-line numbers end up being.

A jolt in the numbers
While Best Buy may be struggling, it has the benefit of knowing its competition pretty well. After all, Amazon has been hounding the big-box retailers for years now. Green Mountain Coffee Roasters (NAS: GMCR) doesn't have that luxury, and with its whole world falling down around it, a jump in demand seems to be the only thing the brand can hope for these days. Christmas is looking like it might be all coal and no cash.

Until September, things at Green Mountain weren't so bad. Sure, the company had had its inventory problems, and there was that whole David Einhorn thing last year, where he effectively called the company out on every business decision it's ever made, but things were looking up. Then things went south again as the company's main patents for its K-Cups expired, Starbucks (NAS: SBUX) released its own single-serving brewer, and Einhorn renewed his attack, saying that the competitive market is going to crush Green Mountain.

All of that adds up to a desperate need to make holiday sales a big thing this year. Luckily, Green Mountain isn't going into the end of the year without any tricks up its sleeve. The company has recently released an alternative to the K-Cup system called the Vue. The Vue comes with a brand-new set of patents, which Green Mountain is hoping will give it some new life. The company is also working with Italian roaster Lavazza to create an espresso machine, which will hopefully end up on shelves before Christmas has come and gone.

The bottom line
While there's no room for sentimentality in investing, I feel like I beat up on Best Buy and Green Mountain a lot. Usually I go on to say that Amazon and Starbucks are the better picks, not only for the short term but for the long haul as well. Unfortunately, I'm going to say it again today. Best Buy and Green Mountain both have plans in place, which is positive, but they're relying on some dubious logic. Best Buy wants to cut off its hand to save its arm, and Green Mountain needs to convince consumers that its new machine is better than its old machine, even though it makes most of its income from the old machine.

Again, I think Starbucks and Amazon come out on top. Both companies are releasing new and interesting products, and Amazon is getting ever closer to one-day delivery. Come holiday time next year, that's going to be a huge advantage. To keep an eye on Amazon, the Fool has created a new special report focusing on the retail giant. It's frequently being updated with the newest information, and it clearly lays out the strengths and challenges of Amazon's current position. Fool readers can sign up for this special report by clicking here.

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Fool contributor Andrew Marder has no positions in the stocks mentioned above. The Motley Fool owns shares of, Best Buy, and Starbucks and has the following options: long DEC 2012 $16.00 puts on Green Mountain Coffee Roasters, short DEC 2012 $21.00 calls on Green Mountain Coffee Roasters, and short JAN 2013 $47.00 puts on Starbucks. Motley Fool newsletter services recommend, Green Mountain Coffee Roasters, and Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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