BUSINESS SPECIAL ......................... Lessons from RadioShack

Lessons from RadioShack





Haphazard diversification leads to the fall of one of America's legendary electronics retail chains If you are on top of the world, determine what got you there

RadioShack, the struggling 94-year-old electronics retail chain which filed for bankrupt cy recently, may have a fighting chance to re cast its business model and thrive again under the banner of wireless phone services company Sprint.Texas based RadioShack plans to sell 2,400 of its 4,100 stores to an affiliate of hedge fund Standard General, which in turn plans to sell 1,750 stores to Sprint. “It is a good solution for now,“ says Denise Dahlhoff, research director at Wharton's Jay H. Baker Retailing Center.“Sprint and RadioShack have had a business relationship for many years and they know each other.“ Lawrence Hrebiniak, Wharton emeritus professor of management, was not as optimistic about RadioShack reversing its fortunes. Sprint “is not the strongest partner,“ he says, because it, too, is having trouble with stiff competition from Verizon and other phone companies. The Sprint partnership will essentially mean “a store within a store“ at RadioShack locations, he points out. “RadioShack's strategy is more of trying to save itself by sharing space with Sprint and hoping that if Sprint does better, it can pick up some pieces and some incremental profit on the way. But it's going to be hard.“

In its latest quarter ending November 1, RadioShack posted its 11th consecutive quarterly loss of $161 million on sales of $650 million. The company has some $43 million in cash and $1.4 billion of debt.

What Went Wrong?

Over the years, the chain gradually lost the distinction of being a popular hangout for hobbyists and electronics enthusiasts, who were attracted by the parts, manuals and catalogues it carried. Along the way, it refashioned itself as a retailer of cell phones and later failed to adapt to online retailing, losing market share to Best Buy, Apple and Amazon.

“The decline of RadioShack took place over dec ades,“ Hrebiniak says. He noted that RadioShack started out as a hobbyist's dream, selling the latest gadgets and CB (Citizens' Band) radios, and that at one point in the 1970s it was opening up to three stores a day.

In those years, it also built one of the first early home computers, the TRS-80.According to Hrebiniak, RadioShack erred in sticking with its own operating system for its computers and not partnering with the likes of IBM or Microsoft. The company also thinned out its focus across several product lines, and entered the cell phone market when the devices had already become a commoditised product with low profit margins, he says. “They focused on computers, batteries, audio, video -it was messy. Even workers get confused if you are changing your commissions all the time.“

RadioShack also failed to adapt when its markets began changing, Hrebiniak noted. “Customers changed -the kids today haven't even heard of RadioShack ...[and they] are not electronics buffs ... running around and building CB radios. They are into gadgets, music and iPhones.“

The Silver Lining

“RadioShack still has a lot of brand equity; it is an iconic brand,“ says Dahlhoff. But the company faces a tough road ahead, she added. “They have to remodel their stores and rebrand. The Sprint partnership will give RadioShack a place to live on and figure out what that brand will be in the future.“

If RadioShack wants to take advantage of the store traffic that comes into Sprint stores, it will have to decide on what it can offer those customers, says Dahlhoff. “It will be difficult to offer to two different segments -the RadioShack segment and the Sprint segment,“ she added.

The company also has to understand the associations people have with its brand and what it means to them. “This may vary a lot, including across age groups, since RadioShack has been around for so many decades and has changed a lot over time,“ Dahlhoff noted.

Lessons Learned

According to Hrebiniak, the lesson from RadioShack's story is clear. “If you are on top of the world, determine what in terms of strategy and execution got you there and what you can build on in terms of your core strengths to continue going forward,“ he says. He cautioned against diversifying haphazardly. “If everything is important, nothing is important.“

Does RadioShack have a future? “RadioShack would have to do something exciting to make themselves look good, to make them appealing to the younger generation,“ says Hrebiniak. “I don't see that. Of course, anything is possible, but it is going to be a stretch. They have to do it quickly; they are bleeding money.“ CD Reproduced with permission from Knowledge@ Wharton 2015 and the Trustees of University of Pennsylvania.

CDET27FEB15