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RadioShack Embarking On Bold New Gambit

10/20/2013 08:00:00 PM Eastern

FORT WORTH, TEXAS – Few would argue that Joe Magnacca inherited a mess.

But even RadioShack’s sharpest critics would agree that the former pharmacy exec offers the best, and possibly last, hope of turning around the venerable but ailing CE chain.

Magnacca walked away from a promotion at Walgreens (to executive VP), and the presidency of its New York-area drug store chain Duane Reade, to join RadioShack in February, becoming its sixth CEO in eight years. Losses were widening and market share was dwindling, as successive regimes struggled with falling CE and mobile margins and the rise of online shopping, which threatened to render its 4,300-plus retail stores obsolete.

But perhaps the biggest challenge to the 92-yearold business is its stodgy image as a place for batteries and electronics parts. Even its name is an anachronism, and a marketing “refresh” four years ago using the shortened moniker “The Shack” did little to burnish the brand.

Magnacca wasted little time. Within the first three months of his tenure he laid out an ambitious plan to improve operational efficiency and update the brand, product assortment and stores to attract a new generation of customers. To help with the quest he brought in key talent including Walgreens colleague Michael DeFazio as store concepts executive VP and digital ad agency veteran Jennifer Warren as marketing executive VP.

The first leg of the strategy was a new branding campaign under the theme “Let’s Play,” which Magnacca said repositions RadioShack as a “neighborhood technology playground.” The tagline has been highlighted in network TV spots, newspaper inserts and social and digital media.

The repositioning continued with the new team’s first TV spot, a play on Robin Thicke’s risqué “Blurred Lines” music video that highlighted a wireless speaker – Beats by Dr. Dre’s Pill – and announced to a younger, hipper audience that a new RadioShack had arrived. (Earlier this month the BBC banned the Beats commercial in the U.K.)

Inside the box, Magnacca is putting his drugstore playbook into action. Changes in merchandising and store design include a renewed focus on higher-margin proprietary and private-label products to boost margins and shield RadioShack from show-rooming; eliminating confusion and clutter by consolidating SKUs and house sub-brands; and a two-tier remodeling program that variously features interactive demos, fresh signage and a floor plan that groups Apple, Samsung and other “power brand” products by vendor, rather than dispersing them throughout the store.

To date, RadioShack has opened five “high-touch” concept stores, including three in Manhattan, that feature live product displays, video signage, interactive touchscreen panels, a wireless speaker wall that allows A-B demos via customers’ Bluetooth devices, and reconfigured layouts and fixturing.

The company is also tinkering with a number of less radical “brand statement” remodels that incorporate some of the concept stores’ features but use existing fixtures and footprints to keep capital expenditures to a minimum. These so-called “low-touch” format stores feature open floor plans with low-profile fixtures; brighter lighting and fresh lifestyle images; revised product placement; a deeper do-it-yourself selection; and an edited assortment that focuses on key brands and categories. The format is also more readily scalable, and could serve as the template for a redesign across the chain.

Sales staff are also being retrained to sell “the whole store” rather than aggressively focus on mobile phone sales, as they had previously been directed, which some customers found off-putting, the CEO said.

Behind the scenes Magnacca is betting on big-growth opportunities in franchising, both domestically and abroad, and has promoted franchise VP Marty Amschler to senior VP to reflect his expanded role in mining new business opportunities for the chain.

Besides overseeing the company’s approximately 1,000 franchised RadioShack locations, and extending the brand to Southeast Asia last year through a 10-country deal with Berjaya Retail, Amschler also forged a recent a distribution agreement that supports the chain’s youth-market initiative by bringing branded RadioShack sections to college bookstores nationwide this season.

Under the five-year pact, National Association of College Stores (Nacscorp) is offering its nearly 4,000 college accounts a tailored mix of RadioShack’s top-selling headphones, wireless speakers and power supplies under such brands as Beats by Dr. Dre, Skullcandy and SOL Republic, as well as the retailer’s own private- label Enercell power and Auvio audio lines.

“There is a significant opportunity to refresh and improve how we present the brand, how we deliver on our brand promise, and how our customer experiences shopping with us,” Magnacca said earlier this year.

Indeed, the SKU reductions allow for a more spacious and inviting store layout – and less encumbered fulfillment system – that focuses on what Magnacca described as the chain’s three core categories: CE, including headphones, wireless audio and laptops; mobile, including smartphones, tablets and accessories; and do-it-yourself products.

The latter hearken back to RadioShack’s ham radio heritage and serve as a link between its traditional customer base and the new generation of shoppers the chain is looking to lure.

The stores may also be put into service as mini fulfillment centers for online orders as Magnacca moves to bolster multichannel sales.

While time will tell the outcome, we nevertheless credit him and his management team for their bold efforts. As Janney Montgomery Scott retail analyst David Strasser recently noted, “We agree that this transformation is going to be challenging, and we have no misgivings about these challenges. But at the same time, we believe that Mr. Magnacca and his team are qualified and the right people to give this turnaround a credible and legitimate chance to succeed.”