Commentary

RadioShack Racing Clock In Turnaround Effort

RadioShack’s new CEO, Joseph Magnacca, yesterday unveiled some details about his plan to rebrand the struggling electronics retailer and to upgrade about 5% of its stores into more experiential environments even as it has slashed prices to cut inventory by as much as 25% in some locations. The revelations came in a second-quarter earnings call transcribed by Seeking Alpha yesterday.

“We will be guided by the five pillars of our turnaround strategy --repositioning the brand, revamping our product assortment, reinvigorating our stores, operational efficiency and financial flexibility,” Magnacca said.

“The new concept store,” the first of which opened in Manhattan last month, “is noticeably different and dramatically changes the shopping experience,” according to Magnacca, who joined RadioShack from Walgreens in February. “It brings to life the new merchandising strategy with a cleaner and more open feel, much less merchandise density, clear product displays with power branding statements and more opportunity for customers to interact with the products we sell.”

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One of the problems is that customers were not interacting enough with some of the other products the store has traditionally sold, from transistors radios to arcane cables and jacks.

“As technology is changing, we are putting some strong markdown principles in place in this business for the first time that forces us to be responsible with inventory,” Magnacca said.

“RadioShack’s turnaround plan involves paring down some product categories, like laptops, while emphasizing more profitable items such as cell phone accessories,” Drew FitzGerald observes in the Wall Street Journal. “The company also aims to cut down on store clutter by giving more space to a few favored brands in areas like headphones.”

“The struggling company is pitching higher-end products as it tries to reduce the clutter inside its stores by shelving fewer items and focusing on a new, less-dense format for high-traffic areas,” Justin Bachman writes in Bloomberg Businessweek. “Ten new stores designed around the new concept will open across the New York-New Jersey metro area this year….”

The store on Manhattan’s Upper West Side offers “displays featuring high-demand brands from Apple, HTC, Samsung, AT&T and Verizon,” the Fort Worth Star-Telegram’s Sandra Baker reported earlier this month. “A speaker wall will allow customers to listen to different models of audio equipment using music from their own Bluetooth-enabled devices.”

Stores elsewhere “will be customized based on location, local buying patterns and neighborhood needs,” Baker wrote.

It is also moving into colleges such as the opening of the shop-in-shop retail space at the University Co-op at the University of Texas, covered by Benzinga’s James Hunt last week.

Same-store sales rose 1.3% -- the first same-store sales growth since 2010 -- but the company reported a loss of $53.1 million versus a year-earlier loss of $21 million. Revenue was down 0.5% to $844.5 million.

RadioShack also announced that CFO Dorvin Lively has resigned to step into the same position at the gym chain Planet Fitness. He is forfeiting a $1.5 million retention bonus he would have earned by remaining at RadioShack until Oct. 1, the WSJ’s FitzGerald says. Janney Montgomery Scott analyst David Strasse points out thatLively’s departure should not come as a surprise, Barron’s Teresa Rivas reports, as he had been passed over for the CEO job when Magnacca was hired. Lively was serving as interim CEO at the time.

Magnacca also revealed that he’d brought in corporate turnaround strategists AlixPartners as an adviser, and he introduced AlixPartners’ Holly Etlin as interim CFO. She will serve until a permanent CFO is named.

The company has also hired Peter J. Solomon to take a “third-party look” at its capital structure and whether it “provides it the optimum flexibility” for a rebound.

Morningstar analyst Liang Feng said RadioShack’s turnaround plan makes sense, but the company has a small window of time to make it work since its capital is limited, and the holiday season is only a few months away,” writes the AP’s Mae Anderson.

“They’re taking the right steps, but it’s a very steep hill to climb,” according to Feng.

“What they’re doing sounds right, but it’s going to take a lot of money and time, and I think they have neither,” Wedbush analyst Michael Pachter tells the Dallas Morning News’ Maria Halkias.

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