Radio Shack, one of the most popular electronic retailer stores in America, until 2015. Growing up many of us has come accustomed to seeing a radio shack located in most shopping squares or malls. When I was a child that’s where my family and I went for all of our electronic needs. One of my uncles even owned two of them at the height of their success. But as time went on the customers needs have changed and other electronic retailers have been raising the bar and Radio Shack hasn’t been able to keep up. This post will look into the main reasons why Radio Shack has gone down under.
In February 2015, Radio Shack had filed Chapter 11 bankruptcy protection. It was obvious that the company had too many store locations that only thrived due to the success of few others. One of their biggest mistakes, which is the same as every company that goes bankrupt, was failure to adapt. Electronic sales were shifting to online and Radio shack was stuck with the same brick and motor location stores. In 2013 the company had switched their focus to selling cell phones. Which accounted for half or more of their sales and produced not so good profit margins. Over past few years Radio shack has been in a scurry to turn around its company, making frequent changes in management and direction. I also herd they took out a huge loan in 2013 from Salus Capitol that caused many of their locations to close down.
- Store Location: In 2014 it was recorded that RadioShack owned operated 4,300 stores in North America. But many of these stores were located too close to each other. For example, I read in this article that stated there were 25 stores in Sacramento, California, most of them only 25 mile away from each other. It gets even worse, seven stores in Brooklawn, New Jersey, were found within 5 miles of each other. Now what convinced them to make so many stores located close to each other, I don’t know beats me. Doesn’t sound like a good idea to me. Having so many stores located close to each other caused a significant drop in profits and inventory problems as store traffic dwindled.
- Weak Online Presence: Over the past five or six years electronic retail has made a huge shift to online. RadioShack was slow to make the change and was relied solely on their brick and motor store locations. They began to experience drops in profits and sales. Due to majority of consumers going to online retailers like amazon and eBay for their electronics. People didn’t have to leave their house to shop anymore and could find electronics and parts for a better price online.
- Product Concentration: In the early 2000s Radio shack had decided they were going to start selling cell phones to up their profit margins. For a while this proved to be a good idea, until the release of the iPhone in 2007. With cellphones making up 50% of their total sales it seemed like it was dangerous aspect. Many cellphone wireless companies began to start selling cell phones at their stores, which made things even worse for RadioShack. Many cell phone carrier companies reduced their payments to RadioShack, to bring down the cost of their cell phones. As a result, their profit and sales margin began to dwindle.
- Problems in Management: RadioShack was in a frantic to turn its company around and in doing so their management was in a state of constant change. From 2005 to 2015 the company change CEO’s seven times. In 2013 they made they Joseph Magnacca their CEO, in hopes he would turn things around for the company. It was their goal to make all of their wrongs right by 2015. However, as Magnacca started making changes, Radio Shack began to plummet ever faster, due to rising cost, numerous changes in management, orders on short notice, and unclear commission structures.
- Loan of Disaster: RadioShack was experiencing negative profits since 2012, they new they needed help in order to stay a float. In 2013, they obtained a $585million loan from Salus on one condition; they could not close no more than 200 store locations, unless Salus said so. In 2014 RadioShack’s profits plummeted even more causing them to try and close more than a quarter of their stores to keep from going bankrupt. Salus said no to the idea, due to a lack of trust that RadioShack’s plans would work.
There is a lot to learn from this post. If you haven’t noticed from my previous post on extinct companies, there seems to be a constant similarity between businesses that fail to stay a float. I would argue that it’s the failure to adapt and change with the consumers needs.