Will RadioShack’s Turnaround Strategies Work?

RadioShack is trying hard to get back on its feet, but will it accomplish this?

Mar 19, 2014 at 5:47PM

It couldn't have gotten any worse for RadioShack (NYSE:RSHCQ). The retailer of consumer electronics goods is trying hard to turn around its business, but it just isn't happening. The stock has lost 33% in the last year and the company recently announced that it plans to close down 1,100 underperforming stores. RadioShack has revamped its top management line-up in a bid to turn around, but it will see no respite in the short run.

According to CEO Joe Magnacca, "RadioShack turnaround will take time and our results will vary as we make strategy changes to improve our long-term financial performance." Let us see how the electronics retailer plans to turn around its ailing business in the wake of competition from online retailers such as Amazon (NASDAQ:AMZN) and bigger peers such as Best Buy (NYSE:BBY).

Turnaround efforts
RadioShack has been sailing through troubled waters for quite some time. The company has faced major setbacks in various areas. To lead its comeback efforts, it has three managers who have over 60 years of combined experience. As a part of its turnaround strategy, management has come up with what it calls the "five pillars" plan. 

These five pillars of RadioShack include repositioning its brand, revamping its product assortment, reinvigorating the store experience, improving its operational efficiency, and improving its financial flexibility. The fourth-quarter results do not reflect any progress on these pillars, but management seems positive anyway. Let us see one-by-one how RadioShack plans to execute on this five-pronged strategy.

The first pillar involves repositioning RadioShack's brand in the minds of customers. To accomplish this, it launched an award-winning commercial that has strengthened consumer engagement and coverage. With this ad, the company launched its new brand positioning statement "Can Be Done, When We Do It Together." RadioShack counts on the technical knowledge of its store associates to set itself apart from its peers. 

The second pillar aims at revamping the product assortment. RadioShack is trying to identify new trends earlier and the company supports technological innovation. The company has reorganized its business into two platforms; mobility and retail. Mobility consists of mobile phones, tablets, and other related accessories. RadioShack is entering into prepaid and postpaid contracts with various operators in order to bring new choices to its stores.

The third pillar involves reinvigorating the store experience. RadioShack has launched a new concept store which comes as a significant advancement in technology retailing. These stores are well-lit and intricately designed with clean lines and modern materials that highlight the products that the company sells. RadioShack believes in differentiating itself from its peers through this new store experience. It has stocked demonstration devices in its stores which the customer can operate and look at before buying.

The fourth pillar involves improving operational efficiency. As a result of this, RadioShack has announced that it will close around 1,100 underperforming stores. However, the company will still have over 4,000 stores in the U.S after the planned closure, which gives it ample room to execute its turnaround going forward.

An outdated concept?
Even though all of the above measures seem encouraging, RadioShack cannot escape the harsh reality that we live in a digital world. Also, it looks like RadioShack is failing to compete on price against online retailers like Amazon. For example, according to Wedbush Securities, a pack of three batteries at RadioShack costs $12.99 while a pack of 10 batteries at Amazon costs $5.45 and a pack of 50 costs just $7.33. Moreover, the wide range of products and stock availability at Amazon in combination with the convenience of shopping from home poses a big threat to RadioShack.

Also, since RadioShack isn't as price-competitive as Amazon, consumers really don't have an incentive to shop at its stores. The resurgence of Best Buy has also become a thorn in the flesh for RadioShack. Best Buy looks to use its 1,400-plus stores and eight distribution centers to deliver goods to customers rapidly and efficiently. Also, Best Buy is going a few steps further by offering rooftop solar panels from SolarCity in 60 of its stores across the nation. So, while Best Buy is making futuristic moves, RadioShack seems to be sliding into oblivion.

Takeaway
RadioShack's initiatives look promising on paper, but the company faces real and potent challenges from new-age retailers like Amazon and turnaround story Best Buy. The future doesn't look promising for RadioShack at all as analysts project a 148.8% annual decline in the company's earnings over the next five years, which makes it look like a dead-money investment.

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Sharda Sharma has no position in any stocks mentioned. The Motley Fool recommends Amazon.com and SolarCity. The Motley Fool owns shares of Amazon.com and SolarCity. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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