Has Even RadioShack's CEO Given Up on a Turnaround?

Analysts and critics of RadioShack (NYSE: RSH  ) have glumly predicted its demise for years, but the electronics retailer doggedly turned aside the worst by, if nothing else, the dint of perseverance. After yesterday's shareholder meeting, though, even the Shack's CEO has apparently put aside his rose-colored glasses and admitted the future is much bleaker than has been previously allowed.

Revenues continue falling each quarter, down 20% in the fourth quarter, twice as bad as the 10% drop in the third. Worse, comparable sales at stores open for a year or more -- an important retail metric because it gauges growth (or contraction) based on already existing stores, not new ones opened -- plunged 19% in the year-end quarter, more than double the 8% decline in the third. Other than a meager 1% increase in comps seen in the second quarter because RadioShack had been dumping merchandise at fire-sale prices, which compacted margins, it hasn't had a positive showing in two years.

Source: Radio Shack SEC filings

Since taking over last February, CEO Joseph Magnacca steadfastly touted the electronics retailers chances of turning things around, unveiling new concept stores, and attracting new financing to keep it functioning. While I wasn't sold on how heaping more debt on the troubled retailer was actually a good thing, it was otherwise viewed as a positive development that would keep vendors shipping their goods to the Shack knowing they'd likely still be paid.

Yet the new debt burden came with strings attached and those pulling them may have broken Magnacca's resolve.

Part of the CEO's turnaround plan was closing 1,100 underperforming stores over the course of a year, and though also skeptical of the plan to remake the remaining ones as mini-Best Buys featuring even more prominent cell-phone displays that are now serving as a drag as everyone began touting mobile as their savior, the need to cut costs was obvious. The only hitch was the banks wouldn't allow it.

I don't know if we can overcome this impasse, but we'll continue to work at it.

--Joe Magnacca, CEO, RadioShack 

RadioShack's new round of financing limits the number of stores it could close in any one year to around 200 before it has to get lender approval, and the banks weren't too keen on slashing the electronic store's source of revenues that would be key to them being repaid. As a result, what Magnacca wanted to do in one year, must now be strung out over several, and for a smaller number. That apparently has him worried.

At RadioShack's annual investor meeting, Magnacca told shareholders, "I don't know if we can overcome this impasse, but we'll continue to work at it." Sure, it shows the same dogged determination he's been displaying all along, but there's a certain resignation to the fact he's being forced to fight with one hand tied behind his back.

I've already suggested Radio Shack's future lies not with cell phones, which have become commoditized, but rather by reaching back into its past and fueling the ambitions of the maker revolution. Not just cutting-edge technology like Arduino microcontrollers and Raspberry Pi minicomputers, but 3-D printing, too, where both the hardware and providing services, like in-store printing, could revitalize interest. That's what should be front and center when you walk into a Shack, not yet another kiosk pushing multiyear phone contracts.

RadioShack's CEO may not have given up all hope of a recovery, but it's clear the bright future he was once talking about has dimmed considerably.

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  • Report this Comment On June 04, 2014, at 8:54 PM, bobc74 wrote:

    And unfortunately Staples, of all places, seems to be on the leading edge of the 3D printing revolution. If RS doesn't move quickly, it will once again be left in the dust with yet another innovation that it could have cornered the market on.

  • Report this Comment On June 07, 2014, at 1:04 AM, Vanmusicblues wrote:

    The problem with your reaching back strategy is in the last 50 years it has become cheaper to buy and replace than make or repair

  • Report this Comment On June 08, 2014, at 6:08 AM, TMFCop wrote:

    I like Radio Shack's recent announcement that it will partner with PCH International to give start ups a chance to feature their new, innovative products in its stores. I think that's the kind of thinking that can turn RS around.

    bobc74, not only is Staples leading the way, but Office Depot is doing the same as is UPS. You're right, if it doesn't hope on the 3-D printing bandwagon soon, that train will have pulled away from the station in making a difference at the company.

    Vanmusicblues, unfortunately you're right as well, that disposable consumer goods and electronics has tamped out the fires to repair. Even though I'm a bit of a tinkerer, more often than not it's just easier (and almost as cheap) to just toss a product and buy a new one. I've often said with ink jet printers it's almost as expensive to just buy a whole new printer when the ink cartridges run out than to buy more ink.

    But I do believe the maker revolution is a rekindling of that spark, and the technology to build the next generation gizmo in your garage is making a comeback. It's not as widespread as it needs to be, certainly, but there are a heckuva lot more people investigating these new technologies and that's why Radio Shack needs to embrace them.

    Being the go-to place where people can find the latest innovations, as the PCH deal promises, could be the start of it heading in that direction. At least I hope so.

    Thanks for reading,

    Rich

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