In the past five years, RadioShack (NYSE:RSHCQ) lost more than 70% of its market capitalization. Despite being positioned in the past as a leader in the retail technology, RadioShack quickly lost most of its market share in the wireless business and tech retail arena, where traditional physical chain stores -- including tech focused chain Best Buy (NYSE:BBY) -- are constantly being challenged by online services such as Amazon.com (NASDAQ:AMZN).
Moreover, the company's brand has been severely criticized for not being attractive enough to young consumers. Forbes contributor Will Burns has called it "the cockroach of retail." And, Joe Magnacca, the company's chief executive officer since February, recently confessed that "not many people" hated the brand. Since the retailer reported more than $110 million in losses last quarter, RadioShack clearly needs to reinvent itself once again, and become a more competitive retail chain, if it wants to survive. But given the increasing competition in tech retail, how can RadioShack manage to improve its top line?
The importance of unique partnerships
The retail industry has reached a turning point where physical chains cannot compete anymore with Amazon.com in scale. The online retailer was selling more than 300 items per second at its peak day in 2012, and has millions of items registered in its database.
One way to achieve differentiation is by establishing solid partnerships with niche brands, who want to promote their products directly to consumers, using a store-within-a-store concept. RadioShack has been doing this successfully, as Morningstar analyst Liang Feng notes. For example, the company established a partnership with Beats Electronics, a producer of top-quality audio products and equipment, to promote its Beats Audio headphones. Establishing more partnerships with niche brands, promoting exclusive products within its own store, and providing customers with a pleasant 'treasure hunt' experience, could help RadioShack to regain market share.
Best Buy, which reported a 1.7% increase in domestic comparable sales in the latest quarter, has successfully used this strategy to improve its top line. For example, in a partnership with Samsung, Best Buy has created the "Samsung experience shop," a place inside its stores where customers can try the latest Galaxy devices, and get support for its Samsung cell phones.
Don't change the brand all of the sudden
The "RadioShack" brand has been criticized for being associated with an old-fashioned technology. However, simply changing the name may do more harm than good. For good or bad, a company's brand is usually associated with something wider, the company's culture. In this regard, Kim Bhashin from The Huffington Post notes RadioShack has entered into customers' minds as the go-to place to find "obscure electronic widgets," such an adapter for a particular speaker system. If the company decides to change its brand and culture all of the sudden, it may risk losing a core group of loyal RadioShack customers, since, as Magnacca puts it, "people who like us, like us a lot."
Furthermore, the industry is full of examples of failed attempts to change a company's culture. When J.C. Penney abandoned its traditional sales, to adopt an "every day low prices" strategy similar to Wal-Mart, its revenue continue to decrease, as the company started losing its most loyal customers.
Final Foolish takeaway
With more than 5,000 points of distribution in North America, RadioShack can leverage its store space and increase its number of partnerships with niche brands to improve its top line. To reposition its brand, the company needs a long-term plan aimed at improving store experience and creating more value for consumers, not just a name change. Of course, the road to recovery will not be easy, and RadioShack may burn cash in the short run. However, demand for smartphones and complementary accessories -- a category where RadioShack is very strong at -- is likely to remain strong, giving the company more time to materialize its long term turnaround plan.
Adrian Campos has no position in any stocks mentioned. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com. 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.