How the Internet of Things Can Save RadioShack

The issue with RadioShack (NYSE: RSH  ) is not just its old stores, but the old electronics that it still carries, and that's a bigger problem than what new stores can solve.

Its Super Bowl ad tried to portray a newer image of the company, but RadioShack continues to stock traditional electronic devices such as cameras, camcorders, and even batteries for hearing aids inside its many valuable storefront properties. Old-time electronics items have been increasingly shelved in the warehouses of Amazon.com  (NASDAQ: AMZN  ) and other online electronics retailers to be shipped directly to customers, who are now more likely to buy them conveniently online.

Old business
To be fair, RadioShack is nevertheless a company with more than $4 billion in annual sales . The company supplies a wide range of conventional electronics and accessories, and some of the stuff still sells. However, there has been little sales growth at RadioShack over the past five years, and there have even been sales declines in some periods. The company's current level of sales, although it remains relatively large, has not translated into better profitability, which is partly due to cost overruns. Operating costs sometimes increased faster than RadioShack's sales, and other times costs continued to go up even when the company's sales fell. The problem is further exacerbated by the overhead of managing an inventory of such diverse merchandise at each store.

Because of the company's shrinking profits and earnings losses over the years, total shareholders' equity shrank to $394 million at the end of September 2013 from over $1 billion at the end of 2009.  Without a turnaround in operational efficiency to generate healthy earnings, sooner or later RadioShack may see its equity depleted and eventually be out of business. With larger peer Best Buy  (NYSE: BBY  ) also struggling to maintain its sales, the outlook for electronics retailing at bricks-and-mortar stores is nothing but discouraging. By selling generic and commoditized electronics, physical stores are inevitably at a disadvantage to online outlets that offer convenient shopping, ease of purchasing, and competitive pricing.

New opportunity
To remedy this inherent weakness, brick-and-mortar retailers have to find a way to compete with retailers on the Internet on different ground. One thing that online merchants can never have is face-to-face interactions with their customers. Meanwhile, physical store operators, especially RadioShack, which has manageable retail space at each of its store locations, have the opportunity to provide in-person sales consultations. Should sales people at RadioShack be trained to be sales consultants, they could offer value-added services to assist customers with the buying process. However, few customers need to consult with anyone to select a camera or hearing-aid battery. The products that RadioShack ultimately decides to sell determine how it can best leverage this potential sales-consultation ability.

Thus, RadioShack may want to consider changes to its current merchandise mix that mostly consists of what everyone else also offers, namely cell phones, common electronics, accessories, power and battery supplies, etc. With the right products to sell, RadioShack wouldn't have to spend on Super Bowl ads. The company might also be able to save some money on remodeling and reconfiguring its stores, which if carried out would likely add to its current cost overruns.

Although the changes may result in discontinuation of some of RadioShack's current offerings, a good starting point would be for the company to retain its current Do-It-Yourself program, which reflects the idea of providing sales consultation to customers who are shopping for technically challenging products. However, the product lines within the company's current Do-It-Yourself program may also need to be redesigned so the company can focus on products that can deliver the most value through sales consultation.

Future changes
So the task for RadioShack is to try to replace its usual and familiar electronics and accessories with new products that will better fit with a Do-It-Yourself program supported by sales consultation. Despite the challenge that physical stores face in the age of e-commerce, there's still a market for in-person services, especially at easy-to-access smaller stores such as those operated by RadioShack.

The key is to offer products and capture ongoing consumer demand for all things mobile, which offer connectivity. This is not just mobile phones, but rather a wider range of consumer products related to the so-called Internet of Things. For example, home security camera systems, which have Internet connections and wireless controls and monitoring, have been rising in popularity among homeowners. However, installing such a system often requires a certain degree of technical know-how, and it would be advantageous for RadioShack to offer sales consultation in a nascent business like this.

Other products within the confines of the Internet of Things present similar opportunities for RadioShack, including Wi-Fi enabled home-use smart thermostats and readable smoke detectors such as those from Nest Labs, a home automation company recently acquired by Google  (NASDAQ: GOOGL  ) .

It's up to RadioShack to decide if it wants to transform itself from one of the many electronics retailers into a unique electronics sales and consulting service company. As more Internet-connected devices come to the market, a new RadioShack with an early position in the connected-device market could see abundant sales growth with higher margins.

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Read/Post Comments (6) | Recommend This Article (3)

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 24, 2014, at 11:29 PM, Vanmusicblues wrote:

    You tube videos displaced sales consultants on how to do a project. RSH recently discontinued it 's post sales support program for electronics so you plan seems to run against their path they are taking

  • Report this Comment On February 25, 2014, at 2:42 PM, JJtheArdent wrote:

    Maybe RSH should think of their path twice, since what they think of doing so far hasn't been successful.

  • Report this Comment On February 26, 2014, at 12:44 PM, jrj90620 wrote:

    Where is Radio Shack going to get employees who know more than the customer?

  • Report this Comment On February 26, 2014, at 5:18 PM, JJtheArdent wrote:

    Good point. It'd be a different business doing consultation and so, you'd want to hire sales consultants, not sales clerks.

  • Report this Comment On March 02, 2014, at 8:20 AM, nightwindrc wrote:

    Recently, I went in to a local Shack and took a look around. There is absolutely nothing in there I would want to buy.

    They have a smart home product, the clerks knew nothing about it, that is too basic a system. I actually went there looking for that type of product. Other systems on the market can automate everything in your home, theirs can turn on a thermostat, light bulbs and doors.

    I looked over there mobile phone selection. Good selection of phones and carriers, priced higher than everyone else. Non branded accessories with higher margins, but no OEM items that I could find. The clerks again did not know how to help with the selection process of a contract phone. They were trained to offer a $5 gift card to look to see if you were eligible for an upgrade. The pay as you go phones were all on sale at half price or better, again no idea how to sell those either.

    Stop discounting for no good reason! Train associates to understand the product they sell. And finally, open up the market for home automation products. Partner with Vera Control or a company like that for home automation.

  • Report this Comment On March 04, 2014, at 9:47 PM, JJtheArdent wrote:

    We can only hope that the company listens to us.

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