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Retail-chain gang searches for way forward in an e-commerce world

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Are there second acts in American retail? Tuesday's earnings from Best Buy and Barnes & Noble – both of which are the last chain standing in categories decimated by Amazon and Internet sales generally – suggest different answers.

Electronics chain Best Buy, in the midst of a turnaround based on cost-cutting, lower prices and more appealing stores, once again released better-than-expected results. That sent its shares up 15 per cent, tacking on to a gain of 160 per cent in 2013. At Barnes & Noble, dwindling sales sent the shares down 15 per cent. Might the reversal at Best Buy serve as a template for a comeback at the book seller?

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Best Buy has not only stopped the sales declines; there is actual hope for growth. Same-store sales declined just 0.6 per cent in the first quarter – impressive for a company in the middle of remaking itself. Best Buy is adding mini Samsung and Microsoft stores, matching competitors' prices, and fine-turning its mix of in-store and online sales. It is also trying to take out upwards of a billion dollars in costs. As a result, the operating margin came in at 2.2 per cent for the quarter, up from 1.9 per cent last year.

Barnes & Noble built its survival strategy around an e-reader, the Nook. (Pearson, parent company of the Financial Times, is also a Nook investor.) Like BlackBerry, Barnes built an acclaimed device, but there was little demand for a third competitor for Kindles and iPads. Nook revenues were down 20 per cent in the quarter. Overall sales dipped nearly a 10th, and management expects more of the same ahead.

The lesson seems to be that bricks-and-mortar retailers must compete on what is in their stores. There is no reason that Barnes & Noble, with the right management, can't do this – unless, of course, electronics are simply a better fit for buying in person. The look and feel of a TV, is important. The same is true of books, of course, but you don't need customer service to explain how to use your copy of, say, The Last Tycoon.

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