In February 2015, RadioShack, once a leading provider of consumer electronics, filed for bankruptcy after years of declining same-store sales and net losses. While numerous factors contributed to the precipitous decline in the company’s financial health, RadioShack’s poor financial performance was largely driven by a misalignment between its business model and its operating model. That is, the company’s operating model was inappropriate given the shifting habits of its customers.
RadioShack’s Business and Operating Model
RadioShack’s business model was to serve as the trusted retailer for the sale of a variety of consumer electronics (including wireless communications, electronic parts, batteries, accessories and other digital technology products and services). RadioShack’s operating model was largely focused on delivering products and services to customers through its 4,400 physical brick and mortar stores.
This was accomplished through:
- Small-sized stores in convenient locations providing a limited quantity of a wide assortment of products
- Merchandise mix with a growing emphasis on mobile devices (Mobile devices accounted for 51% of RadioShack’s $4.38 billion in sales in 2011, up from 44% the year before)
- Superior customer service through sales associates with strong knowledge of company products
In this model, RadioShack’s competitive advantage lay in its ability to quickly serve customers by providing a broad range of products in a more intimate retail setting. Its smaller store size and its company-owned and franchise stores positioned “in every corner of the American heartland” allowed it to provide excellent customer service and differentiate itself from its competitors.
Misalignment between RadioShack’s business model and its operating model
However, shifts in the competitive environment generated new business challenges for RadioShack and it failed to adapt its operating model to compete in this new business climate. Company management failed to understand the growing importance of omnichannel retailing in the purchase of electronics and the need to tailor its operations to serve online customers. Customers of electronics would often consult online sources prior to making a purchase such that retailers operating exclusively through physical brick and mortar stores were used increasingly as a showroom, a place where products could be tested before being purchased online. This was exacerbated by the growing importance of online retailers like Amazon and eBay in the consumer electronics industry. Due to having lower cost structures, these competitors were able to experience operational efficiencies and sell the same products that RadioShack sold at a considerable discount.
As the competitive landscape shifted and RadioShack’s business and operating models became misaligned, RadioShack should have invested heavily in developing a strong digital presence. However, the company continued to operate an unusually high number of stores given years of declining demand for its products in its stores and shifts in consumer buying habits. Furthermore, store selection was poorly managed and in certain regions with a high concentration of stores, the company’s stores cannibalized each other. Both the number and the location of RadioShack stores should have been managed in light of customer preferences. Lastly, poor inventory management (limited offering of products vs. its online competitors) also played a role as the company faced complaints that its offerings didn’t provide the full spectrum of products that customers were seeking.
Human resources and financial capital should have been leveraged to target an increasing pool of online customers. This would have included developing warehouses for distributing its products to online customers and working with suppliers to expand the breadth of its offerings through a digital platform. However, despite the potential to improve its digital presence, the company continued to invest in its retail stores hoping that a remodel of its stores would boost company performance. New store features included:
- A speaker wall where customers could shop and compare different speakers using music installed on in-store tablets or played from their own Bluetooth-enabled mobile devices
- Interactive displays (touch screens and apps) that enabled shoppers to find and compare products
This continued emphasis on its retail stores given the growth of online sales of consumer electronics demonstrated a misalignment between its operations and its primary business objectives.