Conn's (NASDAQ:CONN) is a regional home appliance (27% of sales) and consumer electronics (30%) retailer operating 73 stores in Texas, Louisiana, and recently into Oklahoma. Right off the bat, the first thing that comes to mind is "tough competition." Indeed, since the company is going nose to nose with retailing heavyweights Wal-Mart (NYSE:WMT), Best Buy (NYSE:BBY), and Home Depot (NYSE:HD). Consumer retail is a business with low customer captivity (translation: no moat), and Conn's has no discernable scale advantages that would allow it to survive irrational price or advertising wars with one of these big players. For primarily this reason, it does not make the MagicDiligence Top Buys list.
However, this is still an interesting and well-run company. Long-time management (CEO Tom Frank has been with the company 48 years) has carved out a strategy that differentiates the business from direct competitors. Customer service is a big factor in successful retail ventures, and Conn's requires all of its sales personnel to take training to specialize their knowledge of home appliances or consumer electronics, even going so far as to send them on delivery and installation trips to put this knowledge to the test. For anyone who has encountered a clueless clerk at Circuit City (NYSE:CC), the value of this is evident. In addition,
But the biggest differentiation is
Running the financing unit in-house puts default risk on the company's back as well. Fortunately, this has not been a major issue. Provisions for loan losses have typically been around 3%, and even last quarter (ending July 31) did not produce defaults out of the ordinary. The company recently renewed its financing securitization facilities with banking partners, and the company believes it has enough access to capital to continue its financing business through the next 12 months. This is extremely important news given the seizure in the credit markets today.
On top of all this,