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Is This Company the Next RadioShack?

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RadioShack (NASDAQOTH: RSHCQ  ) shares plunged this past Tuesday and closed down nearly 18%. The suffering electronics retailer reported a dismal third quarter that proved its rejuvenation attempts aren't working. A new financial infusion and management change could prove too little, too late for investors. It's a story that J.C. Penney (NYSE: JCP  ) could end up repeating.

J.C. Penney and RadioShack differ in their product offerings but both stores were pushed to the edges by better defined competitors and the lure of online shopping. Both stores attempted radical renovations that fell flat. RadioShack might not have the time left for a turnaround -- but can J.C. Penney still pull up from its dive?

Source: Sam Howzit

Identity problems
RadioShack was once the go-to store for radios, coaxial cables, and other tech accessories that could prove hard to find at brick-and-mortar locations. Then Amazon sprang into existence and offered a wider range of products at cheaper prices. RadioShack turned toward the burgeoning smartphone market, which offered a low-overhead, high-value focus.

The idea was that customers would come to the store -- or the affiliated kiosks in Sam's Club or Target -- to compare the physical feel of the mobile devices before purchasing. RadioShack had deals with the major mobile carriers so it was easy for customers to complete the purchase in-store rather than go home and order online. 

RadioShack reaped the rewards. The first quarter in 2010 showed a 4% sales increase, year over year, and a nearly 49% bump in wireless sales thanks to a T-Mobile contract. 

The good times wouldn't last. Sam's Club and Target ended their RadioShack kiosk agreements.  Big box competitors such as Best Buy began to shift to mobile strategies for the same reason the idea appealed to RadioShack. Customers became more comfortable ordering devices online. In the third quarter of 2013, RadioShack's comparable mobile sales dropped nearly 10%, year over year.

RadioShack was stuck in a good idea that no longer worked. At least the company had a period of success. J.C. Penney wasn't as lucky with its overhaul strategy.

J.C. Penney brought in Apple's Ron Johnson as CEO in 2011 to redesign its stores in the image of the tech company's successful Genius Bars.  Johnson planned to divide J.C. Penney stores into 100 brand-focused modules, or concept stores, with modernist displays and interactive technology providing information. It wasn't a terrible idea, but what works for iDevices doesn't necessarily work for Dockers khakis.

The early concept store rollouts didn't attract waves of new customers. Nor did Johnson's temporary retraction of the company's generous coupon offers. Johnson found himself out of a job after 17 months. 

Johnson's mid-strategy removal left J.C. Penney in an awkward position. The new store concepts have rolled out too far to undo but returning CEO Myron Ullman doesn't have the money to finish Johnson's ambitious plans. 

Uncertain concepts
RadioShack's third quarter report featured a 10% sales drop, year over year, and an 8.4% drop in comparable store sales. Management tried to focus on the positive -- namely, an $835 million financing bundle that has terms of two to five years. 

New CEO Joseph Magnacca explained that the company is in a transition period as it works to reduce inventories and renovate some locations into... brand-focused concept stores with interactive tech displays.

Meanwhile, J.C. Penney works to undo its concept stores. The second quarter report mentioned that the Johnson-renovated Home stores-within-stores have proved unpopular with customers. That quarter featured a comparable store sales drop of nearly 12% compared to the prior year -- but improved on the first quarter by nearly 5%.  

J.C. Penney has returned to its coupon generosity, but still lacks the major brand pulls of competitors such as Kohl's, which includes lines from reality star Lauren Conrad and fashion designer Vera Wang. 

Foolish final thought
The simple fact remains that neither store has the identity strength to attract a strong new customer base that will come in and spend money. J.C. Penney will soon report its third quarter and a continued improvement in comps could go a long way toward inspiring investor confidence. The retailer still has some time to turn things around. RadioShack might not have the same luxury. 

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Read/Post Comments (3) | Recommend This Article (1)

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  • Report this Comment On October 25, 2013, at 9:11 AM, Matt8265 wrote:

    I couldn't disagree more. Great rearview mirror but sophisticated investors don't need a rehash of what's out there ... they need perspective and a hypothesis of the future. JCP has not only stopped a sinking ship in < 6 months it has almost totally reinvented itself and is sailing. Author should respectfully spend some time in store and on their on-line site seeing complete lines of quality material and more than reasonable prices. This, and 2.0 Billion in cash with 4.0 Billion in real estate with over 1000 stores is no Radio Shack.

  • Report this Comment On October 25, 2013, at 11:50 AM, mr091468 wrote:

    In answer to the article's question, YES. DOA

  • Report this Comment On October 25, 2013, at 7:59 PM, thethreestooges wrote:

    Did Ackman of Pershing Capital pay you to write this article? He lost a lot of money when he sold off.

    I have suspicion that someone was behind spreading bankruptcy lawyer rumor with twitter and the Imperial Capital downgrading from target of $5 to a ridiculous $1. Yes it took a beating from people who manipulate this stock.

    The quality of merchandise is below Macy but above Kohl and Sears. Don't mention Target or Walmart they are bottom feeders. You can't compare department stores JCP to those boutique stores either.

    I will be strolling through the mall and shopping at JCP with family this holiday season. I am sure there are many who are tired of sitting at their computers doing internet shopping.

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Related Tickers

9/26/2016 4:00 PM
JCP $9.57 Down -0.21 -2.15%
J.C. Penney CAPS Rating: *
RSHCQ $0.00 Down +0.00 +0.00%
RadioShack CAPS Rating: *