RadioShack's Turnaround Plan Has a Glimmer of Hope

RadioShack's  (NYSE: RSH  ) most recent earnings report could be likened to a stay in base camp before an ascent of Mount Everest. Many details emerged of the company's near-term plans for its journey upward toward profitability. That journey will be a treacherous one, but I believe one item from the many it discussed in its earnings release gives RadioShack and its shareholders a glimmer of hope for the future.

The plan
On this quarter's conference call, Joseph Magnacca gave investors the rundown on what the company plans to focus on over the coming months, and it boiled down to three areas: senior management, in-store experience, and brand awareness. The new CEO spoke with poise on the call and appears to be quite comfortable at the helm. In my opinion, he's well aware of what challenges RadioShack faces. 

Management
The company brought in two more outsiders to the senior leadership team over the quarter, with Jennifer Warren as chief marketing officer position and Michael Defazio as SVP of store concepts. These two hires appear to be great additons: Warren comes from renowned ad agencies Razorfish and GSD&M, and Defazio brings with him 36 years of retail experience and has also worked with Magnacca at Walgreen. The search is still on for a chief merchandising officer, and then the management team will be complete. It appears Magnacca has been diligent about bringing in executives with turnaround experience, but only time will tell whether his new roster will score big.

Source: RadioShack Press Center.

Brand awareness
Do you get warm fuzzy feelings when I say, "Let's go to RadioShack"? Probably not. The Shack brand of my youth has long since passed, and the company has struggled to find its identity as of late. To tackle this problem, the company is going to focus on a campaign called "Let's Play," whose purpose is to change the company's perception from that of a current nondescript brand to a place where consumers go to have fun with technology. Investors will want to keep an eye on this rollout to see how the public reacts. While the company doesn't need to be immediately successful with raising a tremendous amount of awareness, it will be important to gain some traction in the short term. 

In-store experience
If you had to use one word to sum up the experience at most electronics retailers today, it would invariably be "bad." This is the one area of the plan I was most interested in, and the most telling in my opinion. It was music to investors' ears when management said the company was going to give employees incentives to sell across the whole store instead of just mobile. This could be a huge win from a customer satisfaction and margin perspective.The company changed these incentives in April, and investors should keep an eye on the next quarter's results to see whether the non-mobile sales have started to pick up and margins are improving. 

Foolish final thoughts
All in all, the turnaround plan looks promising. But investors, myself included, shouldn't turn a blind eye to the challenges facing the company. It appears Magnacca has put together a capable team of experts to carry out his vision, but only time will tell whether the team over at RadioShack can rise to the occasion. One thing is for certain: RadioShack is currently priced to go out of business or shrink substantially, and if the company can achieve profitability with its current retail footprint, recent investors will be handsomely rewarded. I'll close with a quote from the master himself to keep investors and myself honest with the challenges facing RadioShack:

"When a manager with a reputation for brilliance takes a business with a reputation for poor fundamental economics, it's the reputation of the business that remains intact."
-- Warren Buffett


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  • Report this Comment On April 29, 2013, at 10:53 AM, OldShackEmployee wrote:

    Expect RS to go out of business in 5-7 years. This new management group has no clue and will continue to have no clue.

    The best thing for RS right now, get rid of the stores. Close them all down, become an online distribution company, selling B2B.

    Why you say I believe this? Because this new management group will never address the fundamental issue in all stores, employee compensation. Turnover is high because employee compensation is so poor.

    The store managers do OK, just OK, but every sales associate is starving.

    Why do you think the store employees focus on wireless? They get the most commission from wireless. Incentives? Unless it is more pay, a lot more pay, the rest of the store will continue to get neglected.

    RS lost its way back in the mid 90's. Getting out of manufacturing, going to the ridiculous sales tier program for store employees, and general cheapness compensating employees. The beancounters got in the way.

    Keep in mind RS bought out several large stores, trying to get in to large store formats, like Best Buy. RS failed miserably.

    Put a fork in them, turn them over, they are done.

    I would fire the new CEO and all of his management team, then take RS in the direction it should be going.

  • Report this Comment On May 03, 2013, at 3:56 PM, TMFBos wrote:

    Just curious, but as you seem to be former Shack employee (judging by your username), how would you incentivize current employees differently? Or is it a lost cause in your opinion?

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