In a world where cash is king, it shouldn't come as too much of a surprise to discover that companies who consistently charge more for the same products don't do as well as their cheaper competitors. In a recent study Wells Fargo and pricing firm 360pi compared retailers with Amazon (NASDAQ:AMZN) to discover how pricing was shifting over time.
Compared across a range of different product categories, Amazon's pricing was seen to be setting the bar against which other companies measured themselves. On the losing side, RadioShack (OTC:RSHCQ) has actually increased its relative prices as time has gone on, even as shoppers flee its stores.
Pricing drags on RadioShack's sales
The study compared over 3,000 items that RadioShack and Amazon both carried, and tracked the cost of those items over a year. When the study started, RadioShack was already the most expensive relative retailer included, with prices of those 3,000 items costing 11.8% more than they did at Amazon, on average. Over the year, that gap grew steadily, finally hitting 20% higher in August of this year.
RadioShack's higher prices have not worked their way into the balance sheet, though, as the company's first half of the fiscal year came with a 1.8 percentage point drop in gross margin. RadioShack has also dropped comparable and total sales over that period, as the company fails to bring in new customers.
Looking back at those two paragraphs, you might see a link. Comparable sales increases are usually driven partially by an increase in foot traffic. The way that most brands manage traffic is through advertising and promotion. RadioShack has clearly not been engaging in the promotional side of that coin.
RadioShack's opportunity to get back into the game
Most of the news about RadioShack this year has come including the word "bankruptcy" in it. In early October, the retailer got a boost from hedge funds Standard General and Lightspeed Management. Those companies both funded the business and restructured RadioShack's debt in order to give it more time to try and turn itself around.
More recently, RadioShack has tried to address customers' pricing concerns, announcing that it will take part in price matching this holiday season. RadioShack is also renovating locations, increasing promotional activity, and growing its marketing campaign to get more customers in stores. All of it is part of the company's renovation plan.
The caveat is that the plan requires "time to fully take hold," as management recently said. That means that right now, RadioShack is still the company with the high prices, fighting Amazon's low pricing model, and simply losing the battle.
The lesson isn't that companies have to charge less in order to be successful. Instead, it's that companies have to take pricing into account and that means competing with other businesses. RadioShack seems to be operating in a world where it's the only company that sells that little transistor, but it's not. As competition heats up and the holidays approach, look for RadioShack to finally get the hint: shoppers care about price in stores and on the Internet.