Monday, November 12, 2012
The future of Fort Worth-based RadioShack hangs by an extension cord
Calling it a "shack" was appropriate, in retrospect.
FORT WORTH RadioShack Corporation seems as if it might be close to selling its last walkie-talkie. The time has come when there can’t possibly be more that could go wrong for a company that abruptly fired its chief executive officer at the end of September and reported losses for two consecutive quarters. RadioShack is hanging by an extension cord for its survival as competitors like BestBuy and Amazon.com are outperforming the small, old-school technology dealer into oblivion.
The Fort Worth-based consumer electronics retailer reported a net loss of $21 million for the second quarter of 2012, compared to net income of $24.9 million for the second quarter one year ago. RadioShack also posted losses of $8 million in the first quarter of this year. This total loss of $29 million so far this year is stark when compared to a net income of $60 million after the first two quarters in 2011.
To align costs with a declining level of business, RadioShack laid off an undisclosed number of workers across a broad range of levels throughout the company at the corporate headquarters in early September.
“As we collectively face the challenges ahead, you should be enthusiastic about our potential,” said Jim Gooch, then-CEO, in a letter to employees amidst the layoffs. The Shack sacked Gooch later that same month, further stressing the apparent need for change and leaving analysts to wonder why RadioShack still even exists.
“They’ve kind of dug themselves into a hole,” said Liang Feng, a Morningstar analyst for RadioShack. “Over the long run, we think that they still have a lot of issues to sort out.”
According to Feng, RadioShack heavily tied itself to mobile phones, which are in a rapidly changing market. Basing almost its entire business model on cell phone sales has caused the company to face severe headwinds.
“Recently it’s a two horse race now, with Apple and Samsung, and everybody else is falling far behind. These guys don’t need to pay as much to RadioShack to distribute their product.” Smartphones, which are low margin products, make up over half of RadioShack’s revenues. This reliance on cell phones has steadily increased; they accounted for 51.4% of sales in 2011, which is up from 33.8% of sales in 2009.
“The Shack” has tried many ways to attract more customers and increase profitability. A new marketing campaign has tried to turn the company from a rusty, dusty radio retailer in the minds of consumers into a cool and hip “Shack” that can take care of cell phone and high-tech personal electronic needs in a small and intimate setting.
Rochanda Rogers, manager at a Dallas RadioShack location, thinks that RadioShack’s primary job is to find solutions for the problems of its customers. The company brags about its “inviting small-box format” on its website and says “every customer who walks through our doors gets the personal attention they deserve — a sharp contrast from the usual big-box experience,” like that of BestBuy.
But paying attention to customers doesn’t necessarily translate into profits for the company. RadioShack’s operating expenses for the last quarter were about 40% of revenue, whereas BestBuy’s operating expenses were only about 23% of revenue. But even with competition down the street from its storefronts, more people than ever are now skipping the physical locations altogether and going straight to online sources.
“All their accessories and consumer electronics, most of the time people just get that on Amazon,” said Feng. The advantage that RadioShack has over Amazon.com, though, is that customers can get what they need immediately and do not have to wait for the product to be shipped.
“You come for little electronic things that you know they’ll have that other people won’t have,” said customer Joe Gillespie, who doesn’t visit the store very frequently, but just on random occasions. So when customers do visit a RadioShack, it’s because of the convenience.
But even this might not be enough to help the company make its way to solid ground. Feng said it isn’t known what RadioShack can specifically do to fix its situation, but one thing is for sure: If it doesn’t do it soon, there may not even be a RadioShack much longer.
“If they can’t turn this around then this company … may have to start closing stores, or worst case, declare bankruptcy over the next few years,” he said.
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