RadioShack (RSH +0.00%) has been one of many poster companies for the should-be retail PSA: Don't Forget to Stay Relevant. In two years, the company has witnessed nearly 79% of its market value vanish. In three years, the company has gone through just as many CEOs. The fourth Chief Executive Janitor (not because of his ability, but because of what he needs to do) is Joseph Magnacca, a former senior executive at Walgreen. As the company reaches a terminal point in its life cycle, all eyes are on Magnacca to see if he can do what his predecessors so brilliantly failed at -- keep RadioShack alive in today's retail environment. Has the company's savior arrived, or is this yet another nail in the coffin?
A coffin full of nails
If RadioShack were to be in the aforementioned coffin and somehow responsible for constructing it at the same time, it would be the world's most excessive nail user. The company has made about every mistake it can over the past couple of years: failing to sell things people buy at electronics stores, failing to generate one iota of meaningful cash flow in the last 12 months, and failing to find the talent capable of turning around the U.S. Postal Service of retail electronics stores.
I'm hard on the company and its managers, but let us, for just a minute, practice forgiveness. Every company deserves a chance at salvation. Could Joe Magnacca be the right man for the job?
Chief Joe
Magnacca oversaw marketing and merchandising for Walgreen's 8,000 stores as well as headed up the Duane Reade chain prominent in metropolitan areas in the Northeast. In his role with Walgreen, Magnacca helped influence the company's shift beyond the traditional drugstore model. He helped rebrand the company and revitalize its product lines. While Walgreen's stock roller-coastered through much of the time during his tenure, the stock has gone nearly straight up since July -- gaining nearly 40% in value.
The bulk of Magnacca's legacy lay in his turnaround of Duane Reade. The New York drugstore chain was, similar to RadioShack, a leading loser in the space for years. The turnaround technically began years before Walgreen bought the beleaguered company, but Magnacca has taken much credit in its recent successes. This may be the strongest argument for the future of RadioShack that investors have heard in a long, long time.
From retired to relevance
RadioShack has an image problem. No one can think of a single reason to go to one. Big-box general retailers such as Target can sell the smaller items -- batteries and the like -- at better prices and while offering a wide array of other products for busy shoppers. Big-box electronics retailers and Amazon can sell the big-ticket items, again in a more attractive manner than RadioShack offers.
The company's latest initiative was to sell mobile phones through Target, apparently in hopes of some osmotic transfer of profits from one chain to the next. It cost RadioShack tens of millions.
But this Magnacca character sounds like he knows a thing or two about irrelevant chain stores. More important, he sounds like he knows how to fix them. In a recent interview, Magnacca was optimistic due to a niche scenario for a small-box retailer with a large presence in commercial real estate. The latter struck me, as I had previously failed to see any value whatsoever in RadioShack's business. But when I thought about it more, RadioShack does have a formidable presence in shopping malls, strip malls, and other commercial locations. I still can't imagine any of them contain human beings, but there is value in presence.
What does Magnacca have up his sleeve to leverage said presence? Are we looking at another Ron Johnson-J.C. Penney scenario?
It's too early to tell.
Bottom line
If Magnacca is able to pull a coup and reroute RadioShack to profitability, it will be one of the greatest executive accomplishments in recent history. At a glance, it looks as though he is the best executive that the Shack's board has put in place yet. Unfortunately, the question is not "Is Magnacca the right man?" but "Is RadioShack a salvageable entity?" If it is, this may be a turning point for the company and its shareholders.
For investors interested in a deep-value turnaround, it's too soon to move forward here. Magnacca has the mother of retail disasters to fix, and it's going to take a lot of time -- if it's possible at all. If you want retail in distress with some determinable future, circle back to J.C. Penney.
