RadioShack: Yes, It Still Exists
The story of a retailer with thousands of products but nothing anyone actually wants to buy.
RadioShack, which opened in 1921 as a single-store retail and mail-order operation in downtown Boston, has fallen on hard times throughout its history, most recently filing for bankruptcy in February of 2015[1]. The company’s poor performance can be linked to weak alignment between its business and operating models. Having once been the go-to place for electronics, from radios to early home computers, a series of events led to the demise of RadioShack, including[2]:
- Ineffective shift to e-commerce
- RadioShack’s ineffective shift to e-commerce made the company less capable of meeting modern consumer demand. Given that customers became accustomed to having a large retail inventory of component parts that emerging competitor online storefronts could provide, RadioShack’s brick-and-mortar stores were unable to carry the range of inventory that customers desired.
- Poor mix of inventory
- Relative to big stores (e.g., Best Buy), RadioShack’s retail locations are typically small and therefore, the company had to be very deliberate in what it wanted to stock, but in-store inventory did not match market needs (e.g., CueCat, an infrared scanner that read a type of QR code generally linking to advertisements, was stocked in stores but not a product that aligned with overall corporate strategy).
Further, RadioShack realized that selling components and accessories (e.g., capacitors and computer cords) would not generate enough capital to sustain its 2,000+ stores.[3] In response, RadioShack tried to change its branding to focus more on general consumer electronics (e.g., televisions, electronic toys, etc.), and in an effort to be operationally aligned to the shifted business model, the company implemented a number of changes, including:
- The type of inventory held in store
- Although RadioShack started carrying a broader range of consumer electronics, the company was never able to effectively compete with large retailers such as Best Buy. In the process, the company also further alienated its long-time customers by stocking less of its traditional components and accessories.
- New labor strategies
- Given that RadioShack’s business model centered around having a large number of storefronts, the company relied on managers to do an excellent job running stores, given inability for significant corporate oversight at each location. To address this issue, RadioShack implemented “Fix 1,500,” an initiative which rated managers to single out the lowest performing 1,500 managers and emphasize their need to improve. However, this program was ultimately unsuccessful, as it disincentivized and demotivated managers that were critical to operational success at a store-level.[4]
- At the corporate level, in 2006, RadioShack brought in CEO Julian Day to revitalize the company and improve operations, however, Day was a poor fit and unable to lead a successful turnaround (evident by being the focus of an Onion article…[5]). In particular, he lacked front-line sales experience and was unable to allow RadioShack effectively compete with retailers such as Walmart (which offered a one-stop shopping experience and deep discounts, given its stronger relationships with suppliers).[6]
RadioShack saw the writing on the wall – it recognized that its historical business model of selling electronic components to consumers needed to change and that its operating model would need to change along with it. However, as RadioShack redefined its business model in attempt to remain relevant to the modern consumer, it did not change its operational structures in a way that supported the new strategic objectives. The result? A company which failed at every step and ultimately declared bankruptcy.
[1] http://dealbook.nytimes.com/2015/02/05/radio-shack-files-for-chapter-11-bankrutpcy/?_r=0
[2] http://www.cbsnews.com/news/5-mistakes-that-doomed-radioshack/
[3] http://dealbook.nytimes.com/2014/09/16/for-radioshack-a-history-of-misses/?_r=0
[4] http://www.ceridian.com/www/content/10/12453/13839/lindseycase.pdf
[5] http://www.theonion.com/article/even-ceo-cant-figure-out-how-radioshack-still-in-b-2190
[6] http://www.forbes.com/sites/nathanvardi/2011/04/25/julian-days-radioshack-turnaround-has-been-a-failure/
Thank you for your post. The product mix certainly seems to have been a primary contributor to the RadioShack demise. I wonder if the products they originally set out to sell, components and accessories, still have a viable market. If so, has this almost entirely moved to online retail or was there a way RadioShack could have reorganized its model to still profitably serve that market through their brick and mortar operations? Alternatively, they could have gone full steam in the other direction to serve the growing consumer electronics market. As you mention, they essentially straddled the line between two customer promises that required very different operational deliveries, and didn’t make themselves great at either. I am wondering what your suggestion would have been looking back over the period in which the began to struggle.
There is still a viable market for components and accessories but for the most part it is entirely e-commerce (with some limited exceptions such as Microcenter). I don’t think that there is a high enough density of consumer hobbyists to support a large-scale retail chain for components. If RadioShack wanted to maintain a position as a component seller it would have needed to make a strong push towards e-commerce.
As I wrote in reply to SamJohnson, while they could have made the switch to strictly consumer electronics, by the time they realized their current business model wasn’t working it was too late — Best Buy and other chains (such as the now defunct Circuit City) had already established themselves as industry leaders. A change to focusing strictly on consumer electronics would have required a tremendous change in their footprint and required the closing of a large number of stores with the remaining locations moving to much bigger storefronts.
My suggestion would have been to focus on e-commerce and component parts. Even now there are relatively few high-profile component stores (e.g., Newegg, Monoprice, and others including relatively recent market entrants). While they would have had to restructure their workforce and potentially close out the bulk of their locations, I think that this would have had a higher probability of success than trying to compete with Best Buy in the general consumer electronics space.
Their main problem was that they were a store that tried to cater to “nerds”. These are the people who buy capacitors and electronics components. They should have seen the writing on the wall. These are the same people who are not afraid to let technology progress. I imagine that this tech-savvy segment was one of the first to embrace the internet and search for the best prices and greatest selection of goods via online retailers.
Do you think that they could have survived well even if they had made the switch to consumer electronics? It seems to me that they were likely to fail, as they seem to no compelling value proposition for their targeted demographic.
While they could have made the switch to strictly consumer electronics, by the time they realized their current business model wasn’t working it was too late — Best Buy and other chains (such as the now defunct Circuit City) had already established themselves as industry leaders. A change to focusing strictly on consumer electronics would have required a tremendous change in their footprint and required the closing of a large number of stores with the remaining locations moving to much bigger storefronts.
RadioShack would have had an incredibly difficult marketing problem in trying to get consumers to think “RadioShack” when they were in the market for a stereo or TV. If they had successfully redefined themselves there is likely room in the market for another large higher end electronics retailer — Best Buy is really the only player with Sears, Target, Walmart etc. occupying the lower end of the market. Making consumers think “high end” when they think of RadioShack would have perhaps been a herculean task.
I agree with Sam in questioning if they could have survived if they switched to consumer electronics. Could they have been a best buy if they changed the product mix and inventory size? What else in their business model served as an obstacle with respect to growing with the change in consumer electronic demand?