Can Hardware Startups Save RadioShack?

RadioShack is betting on the little guy with this new partnership. Here's what investors need to know.

Jun 5, 2014 at 4:15PM

RadioShack stock

Hardware start-ups' products will soon make their way to RadioShack store shelves. Credit: RadioShack

Think brick-and-mortar stores are a dying breed? With the help of a new start-up driven initiative, RadioShack (NYSE:RSHCQ) wants you to think again.

Shares of the beleaguered electronics retailer jumped nearly 9% going into yesterday's close following reports it would announce a partnership with PCH International. In RadioShack's words, PCH helps inventors and start-ups "overcome the hurdles of logistics and get their products in the hands of consumers." 

RadioShack made it official in a press release this morning, dubbing the collaboration "RadioShack Labs" and stating it will offer select PCH companies "special retail terms, and create a direct path to up to 2,000 RadioShack stores and preferred positioning on"

A breath of fresh air?
One of those companies will be LittleBits, a popular modular electronics kit which will make its way into RadioShack stores later this Summer. LittleBits founding CEO Ayah Bdeir touched on the significance of the partnership for hardware start-ups, saying, "I think a start-up friendly retail partner has the potential to transform brick and mortar by bringing in new talent and a much needed breath of fresh air."

But this also isn't an entirely selfless proposition. RadioShack, for its part, looks forward to the direct-to-store model for these products because it will reduce inventory requirements and increase inventory turn in stores. That's a great thing considering RadioShack has suffered from significant inventory losses in recent quarters as it attempted to retool its product mix to bring more customers through its doors.

Unfortunately, its efforts to date simply haven't worked. RadioShack is all set to announce fiscal first quarter results next Tuesday, but revenue plunged more than 20% year over year last quarter, driven by a 19% decline in comparable store sales. It should help that RadioShack simultaneously announced the closure of 1,100 underperforming locations, but it was apparent RadioShack desperately needed to give consumers more reasons to buy its wares in lieu of choosing cheaper online competitors.

By soon offering innovative new products from hardware start-ups unique to RadioShack, it might just be able to convince its former bread-and-butter tinkerers to start spending more money there.

No guarantees
This agreement might well help RadioShack restore its image as a go-to place for unique electronics products, and I agree it needed to do something to move away from its overreliance on decidedly "blah" items like prepaid mobile phones, portable speakers, and cell phone accessories.

But serving as an incubator for slick hardware start-ups is hardly the guaranteed success many hope it will be. However "cool" they are, betting on a series of unproven products as a differentiator won't convince most everyday consumers RadioShack isn't an indispensable business.

Then again -- and I say this as a child of the '80s -- I'd love to see RadioShack succeed in once again achieving sustained profitability. But as its debts grow ever larger and sales continue to fall, I'm not the only one who fears a turnaround may not happen anytime soon.

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Steve Symington has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. 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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