Can RadioShack Survive Another Reinvention?
The eulogies for its demise were, perhaps, a tad too quick. Hardly two months after filing for bankruptcy, RadioShack, the 94-year-old electronics retailer, is back.
According to a recent New York Times story, the company plans to reinvent itself as a neighborhood convenience store for electronics products. This means that the company will stop selling big-ticket items, such as television sets and laptops. Instead, it will become a store for small-ticket electronics such as batteries and phone chargers.
This is the latest in a series of crises that the company has fended off in recent times. It was close to being liquidated back in February but Standard General, a New York-based hedge fund that owns a majority stake in the company, came up with a cash infusion that saved the company.
Late last month, it was reported to be looking into a sale of customer data for advertisers. “We always believed that when you stripped away its relatively heavy cost structure, and some of the legacy ways they did business, there actually was a core here that was worth saving,” says Soohyung Kim, the hedge fund’s owner, in the Times story.
As part of this core reinvention, the company will also prune its staff by approximately 75% to 7,500 employees and close down a majority of its unprofitable stores located in large metropolitan areas. The Texas-based company plans to focus on cities that have populations between 5,000 and 100,000. In addition, it will also seek more partners for its store-within-a-store concept. Sprint, its first partner, has already opened 1,435 co-branded locations with the electronics retailer.
In corporate history, where economic booms and busts can spell the death knell of entire industries and companies, the electronics retailer has survived an admirable 94 years. But with its latest stab at survival, the company is simply prolonging its demise.
RadioShack’s reinvention strategy is driven by hard analysis and numbers. According to the company’s chief executive officer, the company’s stores in small-town America are profitable. This is unlike the company’s presence in Manhattan, which is largely unprofitable and will be slashed to three stores from 30. The electronics retailer’s current strategy seems to be based off of Wal-Mart’s initial days when Sam Walton opened profitable stores in small towns. RadioShack is doubling down on its offline presence to sustain growth and revenues. In effect, the company’s strategy harks back to the Sam Walton era without accounting for changes in consumer habits.
“RadioShack is part of the neighborhood. We are the ‘go to’ store for electronics,” Ron Garrique, the company’s new chief executive officer, is quoted in the Times story. The only problem is that the neighborhood is changing.
As has been evident for quite some time, there has been a ceaseless shift away from the offline world to the relative convenience of online retail. A number of offline retailers, such as Best Buy, are struggling to adapt to this change. RadioShack itself is a casualty of this shift.
The company worsened its problems with its lack of a coherent growth strategy. Small-town America, the company’s target demographic, is also changing. Broadband Internet served up by leading technology players can only mean growth for e-commerce prospects.
Still, one could argue that the company has sufficient brand recall value and history to attract a certain type of customer in small-town America. As a brand, RadioShack has always been known for its willingness to experiment with product mix and for being at the forefront of the electronics revolution.
But that will change when the store steps into commodity territory. The store’s current product mix dilutes RadioShack’s brand identity and significantly reduces profit margins. The chain’s store-within-a-store concept confuses RadioShack’s image in the customer’s mind and sacrifices its brand image to benefit other companies.
The problem of profits and a dwindling customer base
What’s more, there is the case for profit margins. By itself, the commodity business is not such a bad idea. After all, a number of successful retailers, such as Walgreens, have used a similar strategy to drive attractive profits.
In this model, scale is necessary to drive significant profits. A large number of retailers that work in this industry realize this and maximize their physical footprint. RadioShack does not have a clear strategy (or funds) for expansion of its offline footprint. Its product choice also means that the company will work on thin profit margins for its products.
Finally, there is the problem of a declining customer base. According to research from the Brookings Institution, the population of small-town America has been declining as an increasing number of workers migrate to big cities in search of job opportunities with the seismic shifts in the economy. The population slowdown will translate into reduced profits for RadioShack.
There is no doubt that RadioShack is an institution and deserves another chance to survive in one form or another. But the pioneering electronics retailer may not live for long, if it chooses to go with a strategy that is oblivious to changing times.