Category Archives: retail

RadioShack by Any Other Name Would Still be Bankrupt

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The history of RadioShack is an endless series of almosts. After some early success at radios and hobbyist electronics, it proceeded to capture, and then failed to capitalize on, multiple technology leadership roles over a period of over 50 years: stereo equipment in 1960’s and 1970’s, CB radios in the 1970’s, early computing in the 1970’s and 1980’s and cell phone retailing in the 1990’s and 2000’s. While RadioShack should provide prodigious fodder for a generation of business school case studies, the role in RadioShack’s demise of one thing in particular has been highly overblown; its name.

 

R is for Radio

 

What is the most popular “radio” in the world? Time’s up; it’s your cell phone! “How now?!”, you say!  Your cell phone is a package of at least four radios, and possibly more.

 

A radio is a device that receives (and also transmits in many applications) electromagnetic waves of one or more frequencies.  Every cell phone can transmit and receive in at least one frequency of the electromagnetic spectrum.  These transmission protocols have names like CDMA and GSM, and these are the spectrums on which your mobile phone calls are completed. Most modern smartphones can transmit and receive in more than one frequency to allow the use of more of the electromagnetic spectrum.  Depending on how you count radios, each chip modification or additional chip that allows the use of a new frequency could even be considered to be a new “radio”.

 

Modern smartphones almost always have WiFi capabilities, and thus WiFi radios, allowing the use of wireless local area networks.

 

Bluetooth wireless technology is used for headsets, fitness devices, remote speakers and other more proximate devices. Add Bluetooth radios to the list.

 

For yet closer and more secure communication, there are near-field communication radios (NFC radios), used for various payment, security applications like VPN portal access, and even doors and safes.

 

And yes, although not as common, some smartphones have traditional AM/FM radio receivers.

 

So smartphone owners are easily carrying at least four radios in their pockets, attached to exceptionally powerful computers. What a great combination!

 

Fates willing, if we are a spacefaring species in 10,000 years, we will certainly be using radios of many spectra for communicating within ships, between ships, between ships and planetary bodies, and over long distances until the end of the universe. Long live the radio!

 

So, does RadioShack sell radios? RadioShack has sold over 70 million smartphones, so the answer to that is “yes”.  And RadioShack has probably sold ten times as many home stereo receivers (AM/FM), walkie talkies (also radios), WiFi routers (radios), Bluetooth wireless speakers (if two way communicating), transistor radios (back in the day, the hot item), CB radios, portable radios, boom boxes, shortwave radios, ham radios and emergency radios (weather radios).

 

“Yeah, yeah,” you say, “But what about right now? No one uses traditional radio now, and certainly doesn’t call themselves ‘radio’ anything!” Bzzzzzt! I’m sorry, but you’d be wrong.

 

Millions tune in to traditional talk radio, not just through traditional radio sets, but also via Internet or Satellite RADIO.  Three of the top six and  many of the top 20 talk and variety radio shows are produced by and/or are aired on networks that have “Radio” in their name; some examples include National Public Radio (NPR), Minnesota Public Radio (MPR); and both iHeartRadio and Premiere Radio Networks (Ok, ok, they changed their name to Premiere Networks recently) owned by iHeartMedia.  If Wikipedia is in the ballpark with their listenership estimate, Premiere Networks hosts 245 million listeners a month!  That doesn’t sound like a dead medium to me.  Many of these “radio” networks are producing media to be distributed not just over the airwaves but broadcast over the Internet via streams and podcasts.  Even if a new show is not broadcast over the traditional airwaves, or you do not listen to the broadcast on a traditional radio, an electromagnetic radio was probably still involved.   In this day and age, it can safely be said that “radio” is a near substitute for the concept of communication and connection.

 

S is for Shack

 

Is “Shack”, then, the part of the name that certainly defeated the company? Right, just like it defeated Shake Shack’s recent IPO (NYSE:SHAK), a company now worth $1.5 billion, or almost $24 million for each of its 63 stores?

 

Retro Branding Does Not a Bankruptcy Make

 

Brand names that are retro, archaic, cheeky, or otherwise non-traditional are much easier to joke about when tough times arrive; the bait is just so, so easy. Surf over to Wikipedia’s list of bankrupt companies and even the first company, A123, makes it clear how easy and compelling it is to construct a demise headline; “A 123 and Poof, Company Gone”. Run down the list, make up your own, or Google some and see how compelled we are to pile on. And with clickbaiting as all the rage, which one would surfers click on more often: Footstar Stumbles Into Bankruptcy or Footstar Files For Chapter 11.

 

Just start compiling a list of retro brands that never went out of style or were reinvigorated and it is tough to find a stopping place*; from Jim Beam to Miller High Life, and Tom Jones to Mickey Mouse, iconic brands can endure if nurtured properly. Old Spice, a formerly out of favor brand which moved to the top of the deodorant pack is an immensely illustrative story and can be read about here and watched here.

 

Retro names do not cause bankruptcy.  Bankruptcy is a sign of a company that was not run well enough to survive.  In RadioShack’s case, it had operational and identity issues extending back at least 50 years.  RadioShack didn’t, and doesn’t, need a new name; it needs a purpose, the products and services that fulfill that purpose, and to sell enough of those to stay in business.  At most, a poorly matched or marketed name is a symptom of a company’s greater problems.

 

Unfortunately, blaming the name often takes the place of analyzing what really happened.  Current coverage of RadioShack’s bankruptcy, buyout and reorganization has been mixed, with Bloomberg providing better coverage, while others, who shall go unnamed for the moment, are providing less robust, flawed, and even inaccurate coverage.

 

Although it occasionally blossomed, RadioShack was seldom the rose it could have been. But the absence of the RadioShack we knew, and knew it could be, will nonetheless leave the world a bit less sweet.

 

Karl Hartkopf wrote this by elaborating on one of the 500 slides from his RadioShack Rebirth slide deck. He hopes to continue publishing post-bankruptcy RadioShack debriefs and that someday, there will again be a store catering to his geek side. Perhaps it will be RadioShack, perhaps not.

 

* G.I. Joe, The Terminator, Star Trek, Elvis, Marilyn Monroe, Tiffany & Co., Atari, Dart muscle car, Challenger muscle car, Charger muscle car, Camaro muscle car, Brooks Brothers, Levi Strauss & Co, Lacoste, IZOD, Ray-Ban, Chuck Taylor (Converse), Mott’s, Jell-O, Twinkie, Coca-Cola, Aqua Velva, Colgate, Transformers (not as old), American Express, General Electric, John Deere, most Marvel and DC Comics heroes including Batman, Superman, Iron Man, The Avengers, Catwoman, and most Disney characters including Minnie Mouse, Goofy, Daffy, and Cinderella.  [NEWSFLASH, THIS JUST IN: Cinderella is a European folk take from at least 400 years ago.  Talk about a durable brand, eh?]

RadioShack’s Fate Part IV: RadioShack Rebirth-a-Palloza

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Successful turnarounds are rare birds but come in many colors.  In retail, turnarounds that increase sales per square foot is generally a good start, along with becoming more profitable, increasing cash flow or preening to become a better buyout candidate. What follows is a riot of models with which RadioShack should consider experimenting.

 

Cell Service Concierge

 

Cell phone manufacture and the provision of plans on which they work facilitate the exchange of gobs of cash every year.  Cell phones themselves, particularly those smartphones that half of cell phone toting Americans now carry, would cost at least half a Cleveland ($500 for those not in the know) as unlocked phones. But for carrier subsidies and our agreement to two year contracts are we allowed to pay “only” $200 for those phones. By the end of a two year contract, a cell phone user could easily have paid $2,500 or more for a decent minutes, text and data plan  This is why there are mobile kiosks everywhere, including in the bathroom of your local cell phone store (apologies and thanks to the Onion for that one). While a $50, $100, or $200 finders fee seems high on the surface, the marginal benefit of a new subscriber on a network that is essentially paid off is exceptional.  Thus finders fees on new or upgraded cell phone users feed store proliferation.

 

By the mid-2000’s, RadioShack chained the entire company to this strategy.  While still one of the few electronic products that aren’t hot death for retailers, as an increasingly commodity product, this strategy is slowly failing RSH as intense competition rises around them in the form of ubiquitous cell phone saturation via stores, kiosks, and online upgrades.

 

Astonishing as it is, little innovation has occurred in selling of cell phone service in over a decade.  In the increasingly pervasive store/kiosk form, a chummy guy or cute gal who may or may not know anything about the phones tries as hard as they can to get you to choose from the few models they have to offer.  Sure, the stores and kiosks look a little better they used to.  All carriers have improved their national networks versus a decade ago.  A few more phones are offered by each provider than ten years ago.   Yet while you can go almost anywhere now for a phone upgrade or carrier change, it isn’t what it should be. Does the carrier / phone combo work in your area? Given my data consumption habits, what will my plan cost me?  Once you settle on a carrier, there is the maddeningly error prone process of number and carrier switching and phone data porting.  That is followed by resolving the first bill surprise, byzantine methods for blocking numbers, and inadequate documentation on how to use phone functions and features.

 

I dream of a world where all stores are like B&H photo.  It is difficult to explain quite how great they are and why, given that they may even be better than the mythical bygone days of retailing.  They sell you what you need, not what you heard about in an exceptional sales pitch or advertisement.  Stories are regularly told of sales associates convincing a customer to buy a model half as expensive because it does the same or better job than the product the customer came in to buy.  While not as lucrative in the moment, it builds a fiercely loyal clientele and generates an order of magnitude greater referral business.  Add spectacular selection and live online help; now that would be a sales model hard to reproduce if RadioShack pulled it off in this niche.

 

Imagine, a RadioShack with twice as many phones as the largest cell phone retailer.  With a pre-purchase system that allows you to borrow phones from multiple carriers to see which ones work at home, at work or on your jog.  From Jitterbugs to diamond encrusted cell phones, prepaid to all you can eat plans, their selection could be matched by none.  Offer an app backup and locker service.  Carry a solid accessory selection and don’t charge a digit or limb for them.  And back it with expert sales people who know and LOVE phones, selected, trained and paid to create good-word-spreading customers for life. That would be a cell phone store with a lucrative future.

 

High Touch Sales Center

 

In my head there exists a pendulum – the Bose Pendulum.

“Bose products are overpriced toys”.

“Why do so few pieces of audio equipment sound like Bose products?”

“Are you kidding me, $400 for a clock radio?”

“These Panasonic noise cancelling headsets only block 30% of the sound that a pair of Bose noise cancelling headphonesblock…..

…but my Panasonics cost $15 versus $300 and at least let me sleep on the plane.”

The Bose Pendulum applies to their retail stores, as well. Bose retail stores always communicated the wrong message to me; that they were an indulgent waste of high rent mall space.  Until I stood in the sonic sweet spot of their listening area and let splendid music surround me.  Then back again as my jaw drops upon hearing the price for that system. The stores often seemed uncomfortably empty of product and people, excessively beige, and the salespeople a little too anxious.

 

While I suppose this works for Bose, and a better executed version certainly works for Apple, there are surprisingly few national electronics chains that have pulled off this high-end feat. Most outlets that sell high end consumer media equipment are stores begun as labors of love and survive due to the proprietors and close associates direct accountability to the customers and their experience with the products and service. Virtually all are single locations, with the leap to multiple locations seldom succeeding.

 

Tweeter, the east coast retailer which was once a potential heir to the national high end throne with 100 stores in 18 states, failed in the mid to late aughts. Best Buy tries with its listening rooms, but earns under $1,000 a square foot from its stores as opposed to over $5,500 for Apple stores, while few retail chains of any kind break the $1,000 per square foot mark.  Retail is hard, while electronics retail is apocalyptic for those not named Apple.

 

But a need still exists for taming the chaos that is modern home electronics.  High-end-high-tech media, entertainment, lighting, computing and even home automation could benefit from a chain offering well crafted, well sold high end solutions. RadioShack could re-start, partner with the maker of, or buy, a line of high end audio, video, novel computer and electronics, and/or home automation products and systems and use store space to sell the virtues of those products.  How about a complete selection of robots available at retail complete with demonstrations and selection assistance? Even if Radioshack isn’t acquired by a previously mentioned non-retailer, companies such as Google may still be interested in partnerships for spreading their software and hardware including tablet computers. While selling products as insanely great as Apple – and insanely profitable – might be difficult, success could be obtained with much more modest gains in sales per square foot.  A store doesn’t need as many products if the ones it does sell are sufficiently more expensive than those it previously sold – and if it sells those new products in sufficient quantities.

 

High and Medium Tech Services

 

Personal laziness, ignorance, excess disposable income and time constraints, along with technological complexity rock……for businesses that create paid services out of resolving those problems.  Before Best Buy’s Geek Squad, CircuitCity’s Firedog, and Sear’s Blue Crew (huh?), there were the tech pros at RadioShack.  Relied upon for technical expertise, they helped generations install audio and video equipment, assemble Ham and CB radio rigs, repair electronics and assemble a multitude of kits.  Nay, they did not generally do house calls.  Perhaps that should change, with their offering installation, repair and maintenance of the products it sells – and even of ones it doesn’t sell.

 

Like the Tardis or Baba Yaga’s Hut, services could extend RadioShack’s reach beyond its 2,500 square foot average footprint.  For example, Sears has been a prolific business within business creator, offering cabinet installation, home siding and other home improvement quotes, kitchen cabinet upgrade and replacement, floor covering installation, carpet cleaning, duct cleaning, automotive repair services, appliance repair, and a gold buying service. Many of these services use a mobile workforce to conduct potential client visits and many work materials are either shipped directly from the manufacturer or from distribution centers to the work site and thus require minimal in-store space.

 

RadioShack has participated in occasional referral and business within business programs over the years, such as its cell phone kiosks in Sam’s club and Target and most recently with its Trade & Save cell phone trade in program in partnership with Consumer Electronics Exchange (CExchange.com).  It could easily add services for allied products including: installation of the high-touch audio, video, and home automation equipment; computer installation, repair, upgrades and maintenance for personal or business use and the same for various business machines; mobile automotive systems installation including audio and video; and home security systems installation, repair and maintenance.

 

Trusted Global Electronics Retailer

 

While struggling, RadioShack is still a strong, trusted brand. You know your purchases are quality products with a responsible corporation behind them. Leveraging that quality and trust globally may be of huge value.  And while it has recently re-emphasized global expansion, announcing a south Asian partnership and a north Asian partnership, RadioShack needs to be careful that it extends itself in ways that allow it to stand out. Two personal stories may help identify how to do that.

 

Being the hardhead that I am, I find myself spending time on eBay trying to purchase extra chargers, batteries and accessories for the huge number of electronic devices I own.  Often succumbing to the foolish temptation to buy the lowest price item, I am almost invariably disappointed at the result.  More than one cheap Chinese car charger has popped in half, leaving part of itself in the cigarette lighter. Forget just long charging time, cheap wall chargers regularly fall behind the power draw of my cell phone. In its own stores and more so in its global expansion stores, RadioShack needs to make sure that it does not let its retailers or itself put inferior quality products into its stores.  Otherwise, there would be nothing to differentiate RadioShack except the higher price on low quality merchandise.

 

Ireland is a photogenic place, which in my case resulted in filled SD cards.  In order to continue to snap away with freedom, I wandered around a downtown looking for an SD card.  The centrally located local tourist trap retailer charged 50 Euro (which at the time exchanged for $1.60) for a card which in the states should have been 15 dollars, encouraging me to ask area drugstore clerks if they had any store recommendations. A good tip finally led me to a card with the same capacity for 25 Euro.  A global niche awaits a trusted retailer who can offer quality, convenience and a price competitive with the highway robbery prices typically charged at retail store checkout displays and in tourist traps.

 

Global scales of economy would continue to accrue to RadioShack as it expanded, allowing it to get better deals on bulk purchases.  And as its partnerships begin to bear fruit, the chain could become the preferred retail partner for electronics retailers and manufacturers worldwide – the Foxconn of Retailing.  Finally, as its global platform matures, it will be able to locally tune its product mix for the local and tourist populations for each country.  For example, product mix in South Korea, where mobile phone market penetration is over 100 percent (!!) and is smartphone oriented, would differ from that of its United States stores where “only” half of mobile phone owning Americans have smartphones.

 

Contract Educator

 

Apple has admitted that its Apple stores were as much about education as sales when they first started them.  Other manufacturers can surely benefit from this function but may not want the full commitment of chain store ownership.  Similar to the High Touch Sales Center concept, this model would be establish an educator for hire for contractual period of time.  A sort of permanent pop-up electronics store, cycling through various manufacturer’s products to demonstrate all they have to offer.  A platform of sorts, if you will, uniquely suited to the new retail world.

 

 

Media Octopus

 

Media distribution is blowing up, not so much disintermediating as switching intermediators.  DVD Kiosks are replacing rental stores.  IP distribution is competing with coax distribution.  IPads are replacing physical newspapers. RadioShack, and most other companies, have not experimented sufficiently in this realm.

 

Walmart does have one of these experiments going; its Disc-to-Digital initiative where it validates your DVDs, resulting in a play anywhere online copy on the “Ultraviolet” consortium platform.  Regular CDs cost $2 to convert, Blue-Ray costs $5.  RadioShack could offer a similar service, perhaps partnering with Netflix and serving as its exclusive conversion location partner?

 

Why stop there?  How about CD to digital conversion? Cassette to digital, 8-track to digital, LP to digital, 78 / 45 / 33 ½ to digital, phonograph cylinder to digital? Perhaps go the other way; iTunes or other online digital service to disc given a verified account.  How about a physical books scanning service to convert your personal library to digital? Photo, slide, and video conversions, in both directions? Binary’s the limit!

 

Giving consumers better ways to understand new media tools including media receivers and senders is sorely needed in this changing marketplace.  Combining a decision tree tool (online or used by retail associates) along with in-store demonstrations of Vudus, Rokus, Boxees, Xboxes, Tivos and DVRs, Slingboxes and related products would allow consumers to choose the right product for their media exploits.

 

Along those lines, perhaps a video gaming system cage match section of the store where the latest and not so recent models can be handled, played and compared in a more user friendly manner than those at Walmart and other big boxes.  Handheld models as well console systems could be auditioned.  Any foray into selling video games would have to be very well vetted by the bean counters; if the used trade-in part of Gamestop’s business is lucrative enough, it might be worth the effort.  However, if physical game media’s death is accelerating too rapidly, then RadioShack should avoid competing for a slice of that shrinking market.

 

Bricks and mortar media innovations await us, with the DVD conversion experiment just the beginning.

 

Storefront to the Internet

 

Where have all the EBay stores gone (cue the music)? Quite common a few years ago, the craze for formal auction seller storefronts seems to have subsided. However, something new is happening in the virtual-actual boundary; physical storefronts for previously virtual retailers. Online, direct mail and telephone retailers are going real world; recently spotted include BatteriesPlus.com with 500 mostly franchise locations as well as storefronts for 1-800-Flowers.com and its half dozen allied business. Instead of Amazon buying RadioShack, perhaps RadioShack could become a kind of virtual physical storefront for one or more online business? Batteries.com is already 500 stores behind!  Display and demo some or all of the products from large or small online stores and both sell stock on the spot as well as facilitate the ordering of unavailable products online.  I predict that business model variants of the above will be common in ten years.

 

Contract Shipping Consolidator and Destination

 

Even if an online store like Amazon doesn’t purchase RadioShack, the chain could still serve the same shipping consolidation function with which Amazon  is experimenting. For a small fee paid by the customer, manufacturer, or retail partner, packages could be received and stored at RadioShack stores until customers pick them up. RadioShack could be an important new force in the free shipping club field.

 

One way or the other…..

 

One more reason to be cautious when buying RadioShack; even covetous companies wait for bankruptcy filings by their prey before they bid for what they want; the risk of losing out on a deal is sometimes outweighed by the potential of getting a better price on distressed assets without the baggage of existing contracts and obligations.  We may see a renewal or buyout after the declaration of bankruptcy, thus eliminating the value of stock holdings.  My crystal ball suggests interest from multiple suitors or a newly energized management engaging in a metamorphosis will prevent bankruptcy.

 

As a current or past customer, shareholder, or someone interested in being annoying, what can you do to get the RadioShack transformation moving?  Get a question in on the next conference call. Go to their annual meeting and any other open board meetings you can.  Send unsolicited letters of encouragement and suggestion to top staff.  Call your activist shareholder friend to rattle the cage. Rally your local maker cabal to stage protests outside of RadioShack.

 

The next six months to year should be interesting for RadioShack, its employees, shareholders and rubberneckers.  Will the company take control of its own future instead of letting consumers and the market decide for it?  Tune in your Realistic radio receivers to find out!

RadioShack’s Fate Part III: RadioShack Meets the Makers, Again

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“Gentlemen, we can rebuild RadioShack. We have the technology. We have the capability to build the world’s first bionic retailer. RadioShack will be that store. Better than she was before. Better, stronger, faster.”

Introduction to the Six Million Dollar Man television show of the 1970’s (perhaps modified slightly)

 

As a young male, the Six Million Dollar Man was the greatest show ever conceived. Superpowers, technology, action, bionics, cliffhangers – it had it all.

 

As an adult, I now realize that it held another, deeper lesson.  That of rebirth.  Rebirth is an enduring element in our culture’s literature and arts; that anyone or anything can be remade into something different, even better.  Leaders and shareholders of companies are not immune from this belief, even if their belief is seldom realized.  The history of the corporate world is littered with the ruins of failed turnarounds, transformational mergers, and ill-conceived spin-offs.

 

Few retailers are able to transform once, let alone create a process of continuous transformation. If Kmart, Sears, Montgomery Ward, Gap, Boscov’s, Woolworth, and numerous others are any indication, the odds are against RadioShack. Walmart is among the few that seem to have figured out a formula for continued success. Even a retail expert who knows how to create modern retail experiences is having problems transforming JC Penny.

 

However, I believe RadioShack could be an exception.

 

This belief derives from the excitement that I once felt entering the store. “What?!”, you exclaim, “What on earth could have been exciting about RadioShack?”.  Years ago, RadioShack was a fascinating slurry of hobby essentials, with tools, kits and feedstock for a dozen hobbies.  Depending on the RadioShack / Tandy (RadioShack was essentially cobranded with Tandy through the 1980’s) store you visited, even into the 1980’s you might find leather tooling equipment, CB and Ham Radios and early computers and video game systems. In fact, it was a leader in the consumer computing market when it sold the TSR-80 in the late 1970’s and early 1980’s. My visits were prompted by everything from the need for materials to complete Boy Scout merit badges to buying rechargeable batteries before they were ubiquitous. I still use the RadioShack purchased Heathkit battery tester that I soldered together over twenty years ago.

 

While RadioShack offered something special early on,  everything about RadioShack including its signage, uniforms, fixtures, lighting – even the products they carried – became increasingly dated in appearance if not function; as well as less exclusive into the 1990’s. The modern era’s faster product cycling demanded that stores, particularly small ones with limited selection, ever more swiftly refresh inventory. It did not, probably falling a decade behind at its worst point.

 

While no longer a decade behind the times, its challenges have left less slack (cash flow, credit worthiness) for reinvention.  These challenges have been many, including the rise of the big box and category killers, its own CEO resume fraud scandal, expanding dominance of Verizon and its exclusive retail outlets, and cheap Chinese import clones for virtually everything RadioShack sells.

 

Feed the Makers

 

The modern maker movement is not just about people who make things; it is about people who repurpose and remix objects using traditional and technological skills. Last year, 100,000 attended the seventh annual national maker event, Maker Faire, and at least that many are expected this year (looks like 120,000 attended).  DIY culture is clearly alive and well, but it has shifted.  Gone are the days where millions of Americans are focused on installing the perfect stereo, using RadioShack for their gold plated connectors and wiring.  Now, tens of thousands of new technology enthusiasts are building their own 3D printers, multi-purpose robots and musical instruments.

 

RadioShack has never abandoned this group, as you can see at from Shack’s DIY tagged blog postings. It even has a DIY site.   However, RadioShack must do much, MUCH more to become indispensible to this crowd. DIY items are seldom featured in weekly advertisements, nor is there much real infrastructure available to supporting that culture.  Yes, RadioShack sponsors an annual create competition, but it is only in its second year, another piece of evidence of how much catching up is has to do.  And only four of its blog posts feature ‘makerfaire’ as a tag. RadioShack needs its own maker blog, with prolific and charismatic Mr. Jalopy clones as writers. Other ways to enhance RadioShack’s DIY cred include:

 

School – Classes & Partnerships

Woodworking; metalworking; automotive and transportation technology; masonry and shelter building; breadboards and other electronics; and the wild riot of the computer world including hardware, software, sensors, programming and full systems design are all fair game for makers.  Why not partner with vocational technical schools (Vo-Tech), for-profit educational institutions, county colleges, and government and non-profit educational institutions to teach maker skills?  Co-branding, rebranding, naming rights, supply relationships, shared teaching and more could be considered.  Create your next generation of buyers.

 

Workshops

Perhaps full scale education and degree programs are a bit too ambitious? RadioShack could fill the gap more incrementally just as Home Depot fills the gap for various home projects.  Schedule an evening session in the store and lay out everything to make, for example, a home electricity generation windmill, and teach away.  Much of the material and many tools will be conveniently provisioned from RadioShack.  Even if the generator is a motor from a dead treadmill, a maker favorite, surely they could sell a few DC appliances to run off the windmill generated power?

 

WORKSHOPS, BABY!!!!!

A few classes at a pequenita storefront? Fuggedaboutit! How ‘bout beaucoup grande workshops with everything from computer controlled laser cutters to sewing machines, metal lathes to mills, sand blasting booths to spray painting enclosures?!  These exist in magical places known as TechShops and represent promise and peril to RadioShack.  Facilities such as these are big, capital intensive and will spread slowly; only about eight exist now with the expectation of 20 within three years.  But heaven forbid if Techshop decided to supply the makers. If TechShop will be the Kinko’s of the Maker movement, RadioShack needs consider its value proposition to the makers.  Supply house to the makers?

 

Festivals

If the Maker Faire can get 100,000, you can sponsor or create one or more of the “Mini Maker Faire” events already popping up around the country. Start small, innovate and whatever you do, don’t insult the group.  They will know when you are being disingenuous.  Know that if you offer a genuine experience to people, they will naturally gravitate to your products and services.

 

Paddler Peddler as Model for RadioShack in its Maker Makeover

A successful retailer in New Jersey is a great example of the kind of retailer RadioShack could become.  The Jersey Paddler, located in Brick, New Jersey is a fine paddlesport and outdoor gear shop on its own.  But they are much more.

 

Paddlesport, one of the largest canoe, kayak and stand up paddling shows in the United States, is run by the Jersey Paddler.  The store invites vendors to the show, allowing those vendors to sell direct to the consumer at a show discount.  Talks are given; demonstrations happen inside and outside in a holding pond next to the conference hall; watersport related movies are shown and premiered; and there are an abundance of experts available for Q&A.

 

Some weeks after the show, you have the ability to choose a few of your favorite boats to try out on the water near their store.  In warmer weather, they offer paddling classes in flatwater and ocean environments.

 

Paddlesport equipment has higher price points, and margins remain high, partly due to the difficulty in transporting large items and complexity of providing expert sales and service for these items.

 

Don’t think that catering to makers means RadioShack continues to focus on 50 cent connectors; the kits here and here show that there are plenty of higher priced items to be sold.

Feed the Makers and they will feed you, and your company, back.

RadioShack’s Fate Part II: Amazon to RadioShack; “You complete me”

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While the benefits of merging with RadioShack would benefit many retailers and non-retailers, those benefits are are a simple few generally oriented to displaying and selling products.  The benefits to Amazon work differently given its near total absence from our traditional physical retailing realm. Obviously Amazon doesn’t have retail stores.  But it also lacks much of the infrastructure dedicated to retailing including:

 

  • Few slicks in newspaper deliveries except during the holidays
  • Few billboards
  • Few television ads beyond those for the Kindle
  • Modest online direct advertising, not including that placed by its affiliate workforce
  • Minimal traditional “sales” efforts accompanied by requisite magazine, radio and television campaigns; media appearances; product placement, etc.
  • While it does conduct a version of discount sales through Goldbox deals, and does offer discounts on occasional items, the majority of those sales are accessed via email, online affiliate advertising and directly on Amazon controlled web sites as product placement and advertising.

 

Amazon doesn’t seem to suffer much from the lack of these traditional trappings.  Rather, its two most significant problems right now are its fending off the looming imposition of sales taxes and reducing the impact of shipping costs to itself and its customers.

 

State fiscal crises and sales tax fairness arguments – or bricks and mortar competitor sour grapes depending on who you ask – are pushing the online versus offline sales tax differential issue to a head. While the Internet Tax Freedom Act theoretically allows online retailers to remain tax free until November 1, 2014, Amazon has had an increasingly hard time cutting long-term tax free deals with states.  For example, a deal it cut withCalifornia in 2011 allows Amazon purchases to be tax free only until “at least September 2012”.  A similar compromise pushes Pennsylvania’s collection back to September 2012, as well.  Not so lucky are Pennsylvania Amazon customers, where the “use tax” on purchases which were not taxed at the time of sale is now being enforced for 2012 and beyond.

 

For many more purchases, this tax tidal wave will means that sales tax avoidance will no longer be as significant a differentiator between online sales and bricks and mortar purchases. Add shipping costs to an online purchase and the value proposition may lean back toward physical stores for many consumers. Once this is the case, a most significant reason not to maintain stores disappears for virtual retailers with Amazon as the largest.

 

Keeping shipping costs in check also has Amazon constantly working on solutions.  Amazon Prime was developed to create additional loyalty and stickiness to Amazon’s offerings while defraying its cost of shipping. Super Saver Shipping has been a longstanding tool for creating dedicated worry free shopping on Amazon; and to boost the tab on each purchase.  More recent experiments show that Amazon is considering a shipment consolidation strategy as seen in its 7Eleven locker trial and its ongoing locker program which may include non-7Eleven locations.  A natural extension of its shipping experimentation would be more deeply embedded partnerships, for example with UPS Store locations, or the purchase of its own locations.

 

Some argue that Amazon should take the “Store-within-Store” route first, then move on to a retail footprint.  However, given the confluence of events around its tax situation and increasing competition with Google, Apple and Microsoft, waiting may not be the preferable option.

 

Amazon will also accrue many other benefits from the purchase of RadioShack. As its line of Kindles grows, it will find a quality hands on and sales venue increasingly valuable.  In addition, it has been slowly and quietly been building its own brand line, AmazonBasics, which could be the foundation a push into branded retailing. Stores are a natural showcase for owned brands.

 

Imagine one day going in to your local Amazon store, asking for a box of Larabarsor a Schottky Diode the helpful employee would say “We don’t have that dongle / thingamajig / widget / doohickey / product in stock, but can get pick it up here in two weeks, or two days with Amazon Prime!”

 

While stores do violate the “stick to your knitting” rule of business and life, perhaps “Anything, anywhere, anytime” needs to become Amazon’s new servicemark.

 

RadioShack’s Fate Part I: Store Squatter on Borrowed Time or Extreme Makeover Retail Edition Winner?

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In preparation for the video worthy antics of Hurricane Irene, I went to RadioShack (NYSE: RSH) to buy a new battery for my digital video recorder.  After courteous assistance from the staff at the store, we found the battery – for $50.  Given that I had purchased the recorder on Woot for, wait for it, $50, I was not inclined to purchase the battery.  After all, given that I also had a digital camera and at least two cell phones that could also record digital video, the dedicated recorder was not required to get video by any stretch of the imagination.

 

Selling into desperation during times of distress is a fine business model.  Wartime profiteering works well, as it does under police states, times of natural disaster, as well as during times of temporary or permanent resource shortage.  Smugglers are richly rewarded because they risk not just their capital but their lives.

 

On the other hand, in stable world, where resources and alternatives abound, the desperation model fails.  Such is a large part of RadioShack’s fate; we just don’t need RadioShack as currently stocked and run like we used to need it.

 

What determines retail success or failure?  Obviously, selling something that someone else also sells is not the only determinant of whether a store fails, otherwise there would be only one burger joint, or maybe just one brand of restaurant in total. And while I am sure any basic textbook on retail economics will give you a better list than the following, it will shed light on RadioShack’s plight:

 

  • Selling products that are in demand
  • Products offered are differentiated enough
  • Presence in a market with enough “traffic”
  • “Spatially” located to prevent business killing competition
  • Competitive prices offered on stocked goods

 

RadioShack fails in multiple ways based on the above list.  Most products its sells aren’t in demand as they used to be.  Its products aren’t innovative, fancy, specialized, miniaturized while also numerous enough to create business sustaining demand.  Many of its locations are not ideal compared with more modern retail locations, thus losing out on impulse, foot and drive-by traffic.  Other locations are a victim of their success; chosen so well that the locations eventually attract retailers that serve as serious competitors including Kmarts earlier, and then Walmarts, Best Buys and Verizon Mobile stores later on. And as my experience shows, its prices do leave something to be desired.

 

Think about retail product mix.  At RadioShack, 25 percent of each store (at least) is consumed by stereo and electronics connectors, plugs, jacks, wiring and related ephemera in little bins and on hooks. Largely the vestige of the bygone era of stereophilia these items at one time served to draw in customers who bought other items either on their own or as upsells.  Now, however, that space is largely wasted, while the rest of the store offers very little in the way of a unique value proposition. The long tail strikes again.

 

It does not need to be this way, and one way or the other, it won’t be this way soon enough. Either in six months or a year or two, the company will have transformed or be gone.

 

First, why NOT to buy RadioShack
There are reasons you have more than one investment in a portfolio; RadioShack might be one of those reasons. It is a risky bet with a non-zero chances of going to zero.  If you buy RadioShack, your investment is at greater risk than an average security in the S&P 500, and probably the Wilshire 5000, too.  While its market capitalization is under $500 million, making it appear to be a small-cap stock, it is really a fallen mid-cap with $1.3 billion worth of liabilities, about half of that long term debt.  That doesn’t sound like a lot of debt until you realize that it has been downgraded by S&P and Moody’s to Junk status.

 

Debt kills companies.  Six Flags, Idearc, R.H. Donnelley and Lyondell are just a few companies in recent history that took on more debt than they could service and they had to declare bankruptcy. Watch all your company balance sheets closely.

 

If it doesn’t get purchased first or go bankrupt, it will probably be dropped from S&P 500, putting further selling pressure on it as indexes dump it.

 

Finally, for goodness sake, don’t buy it for the dividend. Why is its yield so high?  A stock yielding 2.5 percent with a fixed payout when it is at $10 yields 5.0 percent when the share price has fallen to five dollars.  Yes, you have a five percent yield now, but if you bought at ten dollars, you’d still have a large loss.  “Yes, but I can get a five percent yield if I buy right now!!”  Any stock that has fallen in half is a damaged stock that is likely to fall by half again, leaving you with a $2.50 a share stock yielding 10 percent, having lost half your investment.  High yields exist in very special situations and in distressed equities. Your free lunch may have been sitting out too long, causing you to lose it a short while later.

 

The Transformation of RadioShack….

 

RadioShack can be transformed in three ways: bankruptcy, buyout, or turnaround. Without serious change, RadioShack will probably not survive. Bankruptcy is certainly transformational, but generally the kind of transformation to which only bankruptcy attorneys look forward.

 

….Via Buyout

 

With 94 percent of the nation’s population within a five minute trip of a RadioShack store, the chain offers unique access to consumers. RadioShack could appeal a number of kinds of companies. Potential acquirers could include:

 

Retailers

  • Sears – Eddie Lampert might be interested in another oldfangled retailer to sink his claws into.  He does have his hands full with his existing retailer zoo.
  • Best Buy – Showrooming, large size and product mix are all killing Best Buy (NYSE: BBY). While Best Buy has been experimenting with smaller format stores for mobile phone sales, RadioShack could instantly add to that footprint with less modification that many other retailers. C-Suite problems and existing business problems may keep them away.
  • Walmart – Because it can. Seriously, at some point its existing format expansion will slow, forcing them to look elsewhere for growth including new format expansion.  Walmart and other big box retailers e.g. Home Depot with its failed Villagers Hardware chain, have had a difficult time with forays into smaller store formats.

 

Non-Retailers

 

As in relationships where opposites can attract, so too are companies sometimes attracted to their opposite. And as in both relationships and corporate tie ups, some of these combinations end in failure; think Cisco and Flip, and Fox and Myspace.

 

Non-retailers often believe that retail establishments are ideal outlets for extending the reach of their products.  Cablevision’s purchase of The Wiz, believed at the time as a way to further penetrate the cable internet market, did not work the way the cabler imagined.  However, if acquirer believes their retail acquisition serves other and additional roles, then synergies may triumph.

 

Technology companies seem to have retail dreams more often than the average non-retail company, spuring them to start retail stores with mixed success.  Gateway Computer stores failed, Microsoft is having a rough go of it, while Apple has executed brilliantly. Non-retailers who might have a go at RadioShack include:

 

  • Apple  – Already the undisputed champion of retailing(!), the hybrid manufacturer-retailer Apple (NASDAQ: AAPL) needs a platform to continue its world takeover. While the average Apple store is growing larger than the average RadioShack – something like 8,500 sq ft for Apple vs. 2,500 for RadioShack, size may or may not matter if buying 7, 000 stores (well, 4,700 stores, plus assorted outlets and phone kiosks).  Adjacent store division and combination is not uncommon in the retail world.  Apple recently announced a stores-within-stores partnership with Target, lessening the chance of an independent retailer purchase for now.
  • Private Equity – If correctable inefficiencies are identified, RadioShack could become a target for improvement. PE can put money and time into reinvention, experimentation and strategy in ways a publicly traded company on borrowed time cannot.
  • Verizon Wireless – Verizon or Wireless Zone, its largest franchisee, might find the instant expanded retail footprint appealing, not just to expand its marketshare but to create a bulwark against marketshare erosion. However, with thousands of  company, franchise, and store within store outlets already, it may just cause indigestion.
  • Google – Press has been given recently to Google’s (NASDAQ: GOOG) desire to create a tablet and Android device store in the vein of Apple’s.  Demonstrate and educate visitors on Android tablets over “that other tablet”. Offerings could include devices running Google software such as Chromebooks, Google TVs, and its forthcoming Google Glasses.  Android’s battle royale with Oracle, patent fights in general, and other distracting publicity from issues like privacy may mute Google’s desire from going all in on retail for the time being.  In addition to being an entirely new business, over 7,000 stores is an exponentially larger commitment than Apple’s under 400 stores worldwide.
  • Microsoft – With around 16 company stores, swallowing over 7,000 in one fell swoop would also be quite a feat for Microsoft (NASDAQ: MSFT) and would be a significant business model adoption.

 

Of course, there is one crazy suitor, possibly better suited than others to take advantage of RadioShack’s position of being within five minutes of 94% of the United States population; Amazon (NASDAQ: AMZN).