Two Tech Firms with a Retail Presence I Can Get Behind

This morning I've got a $1,000 piece of useless high-tech hardware hanging over my fireplace at home in Oregon. It used to be a fabulous 50-inch Samsung SmartHub television.

Today I'll tell you a story about what's happened, because it illuminates something critically important when it comes to your money - why you won't see me recommend a single retail tech stock - save two.

That may strike you as odd given how often we've spoken about Technology as one of the six Unstoppable Trends we're following, but there's a reason.

Several, actually.

Beginning with an experience that may hit close to home for you, too... and fortunately is going to point us to the only two retail tech stocks I recommend as a "buy."

Corporate Bureaucracies Can Be Just as Stifling as Government Ones

Like most families, we like to get in some together time by watching great movies, which look all the better on a big-screen TV. Needless to say, my two sons love the big screen for video games, too.

But the real value for us - and the reason we purchased this particular television - was something Samsung calls the "SmartHub."

It's intended to be a gateway to all your media content from pictures to videos, the Internet, YouTube, Netflix, and more. Samsung wants the SmartHub to be an integral part of our online life.

In reality, the SmartHub is a colossal pain in the rear end now that it's stopped working.

That's because the SmartHub is apparently designed in such a way that it has to talk to Samsung's central servers before any application being run on it will work. If the TV cannot connect, it mistakenly assumes that the set's Internet connection is down and puts the kibosh on any app trying to use the web.

No big deal... That's what comprehensive warranties are for, right?

I wish I were less cynical at times. Then I wouldn't have been surprised when a call center representative named Calvin haughtily told me in heavily accented English across a static-filled line, which made me think he was in an offshore call center, that the software was not covered. Mind you, this is despite the fact that the Samsung SmartHub serves as the TV's operating system and the TV cannot run without it.

Nor was I surprised to hit the Internet and learn that Samsung has known about the SmartHub issue for years, yet apparently refuses to do anything about it or provide a comprehensive fix. Sometimes it's apparently a series of bad boards in the TV, while other times it's a software glitch.

I don't know for sure, though, because I cannot get anybody to examine the TV.

I called Samsung's customer service and was told that I had to go through the warranty company because my TV was 1.5 years old.

I tried calling Mr. Gregory Lee, President of Samsung Electronics North America, for a comment related to this story, but was told by company operators that "he doesn't take calls," a fact that is stupefying to me given his position as head of a customer-focused company. That's too bad because I would like to hear Samsung's side of the story.

My last stop was Video Only, the prominent Northwest chain of retailers where we bought our TV. They were helpful but could not repair the TV set themselves. Instead, they referred me to the repair shop team that would... but only after the warranty company issued a claim, which, according to Calvin, they weren't going to do.

Sigh...

So here's the bottom line.

It's unbelievably frustrating to have spent good money on products you expect to work and be told "tough beans" when they don't. Worse, to have no recourse because everybody from the manufacturer to the service reps to the warranty company is busy denying responsibility instead of fixing the problem.

This is everything that's wrong with the retail technology sector today - customers are just a number, and customers with a problem are viewed as irrelevant.

Instead of fostering goodwill, retail corporate bureaucrats are killing it. They used to ooze innovation; now they ooze MBAs. The irony is striking. Most retail tech companies desperately want to engage their customers and create loyalty, yet seem mystified when neglected customers defect to competitors.

Only Two Retail Companies Are Doing Things Differently

There are two things at work.

First, asking customers for feedback and helping them is the last thing many retail tech companies want to do. Instead, they have huge product development teams that track data and constantly "improve" products that, in turn, are immediately launched for testing and data collection. Many of these companies have no clue what to do with customer feedback, let alone anything resembling the ability to respond to it.

Second, even the most basic items are now being integrated with technology. It won't be long before your refrigerator can talk to the grocery store, for example, which then lets your car know to swing by on the way home from work and pick up eggs. That makes the line very blurry between software and hardware.

And when something goes wrong...

I know the party line is that technology will make everything great, and one day that's undoubtedly true. But for now, it's a gigantic mess that's creating a worse consumer experience and plenty of aggravation.

Technology is advancing so fast you can't tell where the TV (or stereo, or car, or washing machine) stops and the data starts.

That means increasingly fickle consumers and less brand loyalty ahead. It also means poorer quality goods to begin with because cash-starved companies that are constantly trying to sell products to skeptical customers will increasingly regard post-sale repair as an expendable nuisance. It also means lower profits, lower earnings, and, in turn, lower share prices.

That's logical when you think about it, and the data bears this out. According to Consumer Reports, the repair rate for HDTVs from 2008 to 2012 was only 4.3% for LCDs and 4.6% for plasma units, for example. They'd rather have you buy a new one.

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It's the same for lawnmowers, stovetops, and thousands of other products. The vast majority of consumer products is no longer designed to be repaired. Companies no longer release service manuals, and finding spare parts is all but impossible. Everything is an "upgrade," a term I've learned to hate in recent years. My Sony Trinitron worked flawlessly for 20 years, thank you very much.

So the next time you think about investing in a retail consumer products company like Best Buy or a retail manufacturer like Samsung, think about the headwinds I've outlined today.

Then consider a company like Apple Inc. (NasdaqGS: AAPL) or Google Inc. (NasdaqGS: GOOG) instead.

That's where you want to be putting your money.

I know they both make products, too, but here's the thing... both companies are heavily and increasingly involved in what I call the technology "ecosphere." Instead of concentrating on devices, they're busy creating products that run "above" any other application or technology. These are programs that are always there... and always on.

This is where the money truly is because it's those layers operating above the hardware that foster customer engagement and create new habits.

Want to buy some coffee? Both companies hope you'll whip out something carrying Apple Pay or Google Wallet. What device it's on doesn't matter. Users will be able to do anything they want via some sort of digital assistant that "lives as part of the operating system," as Bloomberg's Joshua Topolsky noted recently.

I couldn't agree more. According to IDC, the Internet of Things (IoT) marketplace will grow to $1.7 trillion, up from $655.8 billion last year. The number of endpoints - like my TV or your car - will grow from 10.3 billion to upwards of 29.5 billion devices in the next five years.

The most profitable companies for the next 10 years are going to be those that make programs and the related hardware that require no attachment and no pre-existing web requirement to use them. That's significant because the kinds of devices I'm talking about will account for 31.8% of global IoT spending by 2020. More, after that.

And the most popular products are going to be those created by developers who create a seamless consumer experience that is not dependent on how any specific device connects to the rest of the world.

Unfortunately, Samsung and too many other big names don't understand this yet.

Until Samsung and other retail-oriented companies show that they grasp the importance of building a loyal customer base through customer service that's actually service, profits will be harder than ever to come by. So will recommendations to buy them, not surprisingly.

Millions of consumers are going to endure their own version of a "SmartHub" moment in the meantime, until a competitor like Apple or Google shows them where and how they can expect a better consumer experience than the traditional retail giants have ever provided.

About the Author

Keith is a seasoned market analyst and professional trader with more than 37 years of global experience. He is one of very few experts to correctly see both the dot.bomb crisis and the ongoing financial crisis coming ahead of time - and one of even fewer to help millions of investors around the world successfully navigate them both. Forbes hailed him as a "Market Visionary." He is a regular on FOX Business News and Yahoo! Finance, and his observations have been featured in Bloomberg, The Wall Street Journal, WIRED, and MarketWatch. Keith previously led The Money Map Report, Money Map's flagship newsletter, as Chief Investment Strategist, from 20007 to 2020. Keith holds a BS in management and finance from Skidmore College and an MS in international finance (with a focus on Japanese business science) from Chaminade University. He regularly travels the world in search of investment opportunities others don't yet see or understand.

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