Yesterday, as a part of their earnings for the fourth quarter of 2013 Radio Shack announced that they would be closing 1,100 stores across the country. The reason for this announcement was primarily because of Radio Shack [NYSE:RSH] had such a poor showing in the fourth calendar quarter of the year and overall had a pretty poor year as a whole as a result. In the fourth quarter of the year, the busy holiday shopping season, Radio Shack posted a net loss of $191.4 million on $935.4 million in revenue. This is compared to the same period a year ago, where the company posted a loss of $63.3 million on $1.174 billion, resulting in a decrease in revenue and an even greater decrease in the company’s profitability. Radio Shack cited lower traffic and poorer smartphone device sales, which obviously indicate a fundamental problem with Radio Shack’s current business model. The stock is down about 20% since the announcement, which is already at a lowly $2 price range with a market cap of only $200 million.
The company spent a good part of 2013 trying to reinvent itself and even hired a new CEO not only a year ago. They also ran a Super Bowl ad, which was met with much critical acclaim that kind of reinforced that Radio Shack is changing themselves and that the days of a store from the 80’s are over.
So, it comes as little surprise that the company has announced after posting such a poor showing that they would be closing up to 1,100 stores. Even though, they stated that, "We will continue to have a strong, unmatched presence across the U.S. with over 4,000 stores including over 900 dealer franchise locations." Which, to me, indicates that perhaps the company isn’t necessarily trimming enough stores. Radio Shack’s problem primarily has to do with the fact that people simply aren’t coming into their stores because most people have no idea what they sell or why they should go to Radio Shack over any other store.
This news comes hot on the heels of yesterday’s news that Best Buy is going to be laying off thousands of upper, middle, and lower-level managers throughout the company as a result of their own poor holiday sales showing.
One of the things that Radio Shack could do would be to more heavily advertise themselves as a retailer of smartphones like Best Buy already does. But, since they have a much smaller store footprint, they can effectively stock almost the same number of phones as Best Buy but without having to pay nearly the amount for floor space. If Radio Shack can adopt a similar business to Best Buy’s mobile business, they could actually make a lot of money from wireless contracts. But what they need to do in these situations is make their offerings more attractive than Best Buy or the carriers. This includes stocking the right accessories and having the right warranty, insurance and services.
Additionally, Radio Shack can continue to promote themselves as a place for do-it-yourselfers as they had in the past, but with a newer age. They can stock certain unique items by reaching out to various crowdfunding projects and help them get their products into stores. This will help those people get better distribution and sales, while simultaneously associating Radio Shack with new and groundbreaking technology and get free promotion of the brand. Additionally, it would drive more, younger, and more wealthy traffic to their stores. They need to carve themselves a new niche that Best Buy, Fry’s, Amazon, Target and Walmart simply can’t do.
Just looking at how many stores they have in the San Diego area, 44, you can see that perhaps they don’t need nearly as many stores in order to effectively sell to consumers, especially in the central part of the city. The question is, will closing about 1/4 of them really accomplish anything in terms of improving their business model? I don’t think they need nearly as many stores as they currently have in order to execute on a new business model. They don’t simply need to be closer to consumers than the nearest Best Buy, Fry’s or wherever else people might want to go buy technology, because that strategy clearly hasn’t worked. They just have to be more focused, and better, which isn’t really hard to be honest when you’ve got a much smaller store and can serve more people with fewer staff.
Imagine how many people would have started to come into Radio Shacks if Radio Shack struck up a deal with Pebble to sell pebbles in store when they FIRST got funded and started selling them. Having such hot products simply drives traffic into their stores and helps the company to become hipper and more relevant. Sure, they need to compete with the web, but with things like wearables, people are going to want to try them on and see how they feel. Radio Shack also needs to improve how they tie together their online and retail presence and to offer unique business cases that utilize their broad network of stores to improve the overall shopping experience. Perhaps, even, offering same day shipping through certain partnerships with UPS and such. After all, they are probably much closer to many people’s homes than any Amazon, Walmart or Target warehouse.