RadioShack Proves That You Cannot Compete With Wal-Mart, Let Alone Amazon.com

That silly Super Bowl commercial with Hulk Hogan and Alf was absolutely right: RadioShack  (NYSE: RSH  ) is stuck in the 1980's. The iconic electronics chain is trapped in an era before Wal-Mart Stores (NYSE: WMT  ) and Amazon.com (NASDAQ: AMZN  ) changed the retail landscape completely.

RadioShack is in deep trouble because it is following a retail game plan that belongs in the 1980's. RadioShack sells electronics and paraphernalia through small, old-fashioned stores in shopping centers and on main streets. The chain depended on customers who didn't understand their technology and needed help with it.

It also depended on an old-fashioned retail environment in which RadioShack was the only place in town to get electronic gadgets or help with them. That retail environment is as dead as Hulk Hogan's wrestling career.

How RadioShack paid for that Super Bowl ad: it isn't funny
Efforts to make RadioShack into a smartphone sales outlet which competed with the Verizon store failed. On Sept. 30, 2013, RadioShack reported a diluted earnings per share figure of ($2.71). The chain was certainly in trouble and it needed help.

So what did the geniuses at RadioShack do? They adopted a classic piece of 1980s-style promotion: they spent a fortune on an elaborate Super Bowl ad. That strategy, of course, is pure 80's; it worked for Apple back in 1984, but it obviously didn't work for RadioShack in 2014.

To make matters worse, that Super Bowl ad and Hulk Hogan's paycheck were probably financed with debt. RadioShack took on $835 million in loans, mostly from GE Capital, in an attempt to refinance $625 million worth of debt to finance an overhaul of the company.

Just two days after that crazy Super Bowl ad aired, The Wall Street Journal reported that RadioShack plans to close 500 stores over the next few months. That is probably the biggest retail meltdown since Circuit City imploded in 2009.

How Wal-Mart Killed RadioShack
So how does Wal-Mart fit into this picture? Simple: Wal-Mart is now RadioShack's biggest competitor. It sells virtually everything that RadioShack does, but at lower prices and at more convenient locations.

Wal-Mart has also changed Americans' shopping habits by training customers to go to one place for most of what they buy. Customers naturally pick stuff up at Wal-Mart because they know the giant retailer will have most items at a good price.

This enables Wal-Mart to move a vast amount of merchandise and generate incredible amounts of revenue ($475.11 billion trailing annual revenue on Oct. 31, 2013). There is no way a smaller retailer like RadioShack, which had trailing annual revenue of $4.09 billion on Sept. 30, 2013, can compete with that.

Those who don't go to Wal-Mart go to other stores such as Costco and Target, which do pretty much the same thing that Wal-Mart does. Then, of course, there's Amazon.com, which is essentially an online Wal-Mart that offers one-stop shopping and convenience on your tablet or your smartphone. eBay, Amazon.com's competitor, is even more like Wal-Mart.

The online retailers pose a direct challenge to RadioShack. Why go to RadioShack when I can sit down at my computer, order the cell phone case I want, and have it delivered to my house in couple of days?

Is RadioShack's future retail's future?
Okay, is it possible that RadioShack might turn things around? I suppose. RadioShack has hired former Dollar General Corp. executive John W. Feray as its new CFO, which makes it seem like RadioShack might try to become the dollar store of electronics. The problem with that strategy is that the Shack will face intense competition from dollar-store operators like Family Dollar and Dollar General, as well as drugstore chains like Walgreens. The small-box retail market is already saturated, and entering an overcrowded arena is never a successful strategy for a struggling retailer.

The strategy seems like a desperate one, but RadioShack is in a desperate situation. Its stock was trading at $2.23 a share on Feb. 6, 2014. RadioShack has to do something just to show investors and customers that it's still alive.

What's truly frightening is that other retailers could soon follow RadioShack's path with mountains of debt, store closings, and tiny share prices. Best Buy, J. C. Penney, h.h. gregg, and Bed Bath & Beyond seem likely to fall into the same trap. These companies cannot compete with Wal-Mart, and now, like RadioShack, they are having to compete with both Wal-Mart and Amazon.com.

But even Wal-Mart has some issues
To learn about two retailers with especially good prospects, take a look at The Motley Fool's special free report: "The Death of Wal-Mart: The Real Cash Kings Changing the Face of Retail." In it, you'll see how these two cash kings are able to consistently outperform and how they're planning to ride the waves of retail's changing tide. You can access it by clicking here.


Read/Post Comments (4) | Recommend This Article (5)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On February 15, 2014, at 8:17 PM, MaxxTheKatt wrote:

    Sorry to see this happen but I don't think Radio Shack is going to make it. Other retailers are selling all the same stuff and at better prices. People are not interested in the little electrical components anymore. Radio Shack could have made a deal with Apple to be their Apple outlet nationwide. Too late now. Another retail icon to bit the dust.

  • Report this Comment On February 15, 2014, at 9:44 PM, JAKEMAN wrote:

    I find it quite disappointing of the fact how not enough individuals are any longer interested in electronic components in which you would find at radio shack... it takes away from passionate hobbyist and do yourselfer geeks suck as myself who like to build electronic contraptions which can expand into other hobbies. It is also a sad fact that Radio Shack no longer holds the interest of young adults who may hold an interest in school science fairs and science projects but rather the only thing that seems to sell are the latest options in cell phone technology.

  • Report this Comment On February 16, 2014, at 9:20 AM, matt123z wrote:

    Radio Shack has been on its way out for some time now. I worked there from 1991 to 2001. When they started shoving cell phones down peoples throats, lowered the quantity of electronic parts and started jacking up the price of all of their accessories they lost their loyal customers.

    Jakeman, there is still plenty of people interested in electronics, Adafruit and Sparkfun are good examples of that. Also look at Jameco, Mouser and Digikey.

  • Report this Comment On February 16, 2014, at 10:24 AM, Angelique wrote:

    How much did Radio Shack spend on the Superbowl ad? Would it have been enough hire too hire KNOWLEDGEABLE sales people in key stores? If customers trusted that Radio Shack salespeople knew EVERYTHING about the phones and services they sell, as well as other products, then for some customers (like me!) they would have an edge over all competitors.

    They could also create a niche for "learn about electronics" toys and "build it yourself for kicks" kits and accessories for those kids and adults who have an interest, diverting parents from specialty toy stores and catalogues.

Add your comment.

Sponsored Links

Leaked: Apple's Next Smart Device
(Warning, it may shock you)
The secret is out... experts are predicting 458 million of these types of devices will be sold per year. 1 hyper-growth company stands to rake in maximum profit - and it's NOT Apple. Show me Apple's new smart gizmo!

DocumentId: 2841061, ~/Articles/ArticleHandler.aspx, 12/19/2014 11:00:52 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...

Apple's next smart device (warning, it may shock you

Apple recently recruited a secret-development "dream team" to guarantee its newest smart device was kept hidden from the public for as long as possible. But the secret is out. In fact, ABI Research predicts 485 million of this type of device will be sold per year. But one small company makes Apple's gadget possible. And its stock price has nearly unlimited room to run for early-in-the-know investors. To be one of them, and see Apple's newest smart gizmo, just click here!


Advertisement