RadioShack's slow, painful death
The company just posted a horrible quarter and suspended its dividend. There's little hope it can turn things around in this age of 'showrooming' and online buying.
Analysts have turned on the company, and with good reason. It has simply lost its direction. That became clear this week after RadioShack suspended its dividend and swung to a $21 million loss in its second quarter from a $25 million profit a year earlier.
Shares fell to an all-time low of $2.46 after the earnings were announced. They recovered to $2.64 Friday. A year ago, shares were $14.
RadioShack made a big bet on smartphones earlier, and that's what's keeping the company hanging on. People are going there to buy cheaper, lower-margin phones. Mobile phone sales rose 3.3% in the quarter, but that wasn't enough to offset the 26.5% plunge in sales of other consumer electronics.
Analyst Michael Lasser of UBS thinks RadioShack is suffering from an identity problem. It's tried to become a phone and mobility product seller, but that hasn't resonated with consumers, Lasser wrote in a recent note. He lowered his price target on the stock to $2 from $3. "RSH's efforts to address its problems reflects 'more of the same' thinking," he wrote.
You can hear more from Lasser in the following video.
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RadioShack still has 4,700 stores across the country, often in small strip malls with low rent. The stores don't have much traffic, and half of their space seems devoted to phones at this point. When I go into a RadioShack store (which isn't often, I admit), I get immediately approached by the overly aggressive sales staff asking to help. There isn't much opportunity for browsing or spontaneous purchases; you get what you need and leave.
RadioShack's profit margin tumbled in its most recent quarter to 37.8% from 45.9%.
The Motley Fool thinks RadioShack could improve its business by selling things that people actually want to buy, such as an Apple (AAPL) iPhone service desk or a universal remote programming station. That might generate more interest than sales of batteries or remote-controlled cars. "The only problem is that doing something that logical might cost the company its prized title as the worst retailer ever," writes a snarky Michael Lewis.
Maybe RadioShack could become the Brookstone of electronics accessories, selling higher-end items you don't need but that seem pretty nifty. It's a long shot.
RadioShack is trying to sell itself to shoppers again. Its launching a new advertising campaign soon asking the question "Why RadioShack?" It may be able to improve awareness of its brand, but that won't help two of RadioShack's biggest problems: People buy electronics online and from big-box retailers, and the business of selling cheap, low-margin phones has no future.
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Here is a letter I sent to the CEO last week...
A little over 40 years ago, I purchased my first Realistic brand AM/FM transistor radio. A year later I purchased a Realistic brand multi-band receiver. A few months later I bought a Realistic brand AM/FM car radio, then a Realistic brand portable cassette player, then a Realistic brand Home Stereo system, then upgraded my speakers with Realistic brand, then purchased a Realistic brand eight-track tape deck then a cassette tape deck. Not to mention all the wires, connectors and other parts. I was also a hobbyist and purchased numerous kits.
30 years ago, I up-graded my entire Home Stereo system with Realistic brands, I purchased a state-of-the-art record turntable with a direct-drive motor with strobe light, then my wife purchased a Realistic brand radio/alarm clock with cassette player.
25 years ago, I purchased for my children, Realistic brand portable cassette players (like a walkman), then bought them Realistic brand stereo systems for their bedrooms, then Boom Boxes for the beach, then Realistic brand radio-controlled cars, electronic chess game and many other items while the kids lived at home.
Then everything came to a halt! The Realistic brand that I had come to love and trust basically dropped off the face of the earth and your store was like every other store. No more Realistic brand with proprietary merchandise. You only sell the same thing everybody else sells.
Yes, the Internet has changed the way buyers purchase. And Yes, buyers are using “brick and mortar” stores to see and touch the merchandise so they can shop the internet for the lowest price.
But here is a thought…. If you go back to your roots of over 40+ years ago, you could offer Radio Shack products which can only be purchased at Radio Shack stores, like you used to do. You can create a whole new generation(s) which will be loyal to Radio Shack and their quality brand, Just like me, my family and the millions of families over the last 40+ years. I would like to see Radio Shack back on the top of consumer electronics again. Believe, take action and it will happen!
You have to be of a certain age to remember when Radio Shack was a cool place to go. A place to go where you could get electronic parts and gadgets you couldn't find other places. A place where you could actually take some things to be fixed. A place from a bygone age where everything electronic wasn't disposable and made in China.
The guy behind the counter was a geek and proud of it, and he had the answer to your question about what you were buying, or looking to buy. And if he didn't have the answer for you right then, he could get the answer for you in a matter of minutes. Seems you don't find that at Radio Shack much anymore, or many other places for that matter these days.
I will miss the shack, I used to be able to get electronic parts there. Anymore they don't have what I am looking for and "No...my phone is fine THANK YOU". They have lost their identity and market-share to cheap throw away electronics made in China that aren't worth the time to fix.
Radio Shack is another victim of a bygone era same as the bookstores, mall department stores, and video stores.
I could solve their problems with one simple solution.
Close all of the stores that are in in-door malls, the extra costs isn’t’ worth it and re-open out door easy access stores.
The geeks and others who like to shop there don’t shop at malls…its that simple.
Their only other option is to close all the stores and just do e-commerce.
their business model.
I writing to let you know I am no long going to purchase products from Radio Shack after being a customer of yours for many years. My first experience with Radio shack was in the Seventies when you opened a store in Everett Washington. The store at that time was noted for Electronic Parts, Stereo Equipment, computers, scanners, two way radios, and good service.
This reputation in opinion is not longer true based on a recent attempt to locate a part for an Optimus Mach 3 speaker which has a bad woofer. I located the fax back document for the 400-4039 speaker enclosure and got the part number for the woofer I needed. I called your parts center like I have done so many times in the past to order parts.
When I called the main number on the fax back document operator had no clue what a parts dept was and when I did get to a person who tried to help me they had no idea what I was talking about. The person kept trying to refer me back t the store. The products you do stock do not interest me and frankly going to your stores is a waste of time for me anymore.
Fry’s here in the Seattle area does a much better job and will be getting my business now on since they carry a lot of the items you used to. Maybe you should change your name. You are not Radio Shack anymore. Your just another computer phone store and that is it.
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The solid report comes a month after the retailer closed all of its Canadian operations.
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