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RadioShack Reveals Three-Part Turnaround Plan

5/05/2013 08:00:00 PM Eastern

FORT WORTH, TEXAS – RadioShack plans to refresh its brand, assortment and stores to attract a new generation of customers and reverse a string of successive quarterly losses.

The turnaround strategy, which is still evolving, was outlined during a first-quarter earnings call by CEO Joseph Magnacca, who joined RadioShack in February from Walgreens.

Magnacca said he spent the ensuing weeks assessing the company and bolstering its senior ranks with the additions of former Walgreens colleague Michael DeFazio as store concepts executive VP and ad agency veteran Jennifer Warren as marketing executive VP.

They join a freshly minted dream team that includes store operations chief Troy Risch, formerly of Target, and Sam’s Club veteran Huey Long, who heads business development and omnichannel strategy.

“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,” he said.

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

The team also debuted its first TV spot last week, a risqué-by-RadioShack-standards music video for Beats by Dr. Dre’s Pill wireless speaker, which is designed to attract a new, younger audience.

Inside the store, Magnacca is placing a renewed focus on private-label brands and products, which differentiate RadioShack from its competitors and provide higher margins. He said his merchants are currently rationalizing the assortment and that the fruits of a recent product development foray in China will hit shelves this summer.

The stores themselves will undergo a refresh, kicking off in New York over the next few weeks. The remodeling program leverages the stores’ existing fixtures and footprints to keep capital expenditures low, and will include more interactive demos and “power brand” displays that group products by brand rather than category.

By way of example, Magnacca noted that Apple products are presently merchandised throughout the store by product classification, rather than presented in a central Apple area, making it more difficult for customers to find what they’re looking for.

Sales staff will also be reinstructed 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.

There are no plans for wholesale closures of stores, Magnacca noted, although redundant locations may be shuttered as leases expire. The chain shut 104 company-operated stores last year, but the new management team is considering using its over 4,000 locations as mini fulfillment centers for online orders as it moves to bolster multichannel sales.

Magnacca said he also met with key vendors who are “encouraged” by the initiatives.

Investors, who’ve heard a litany of strategic initiatives under six CEOs in the last eight years, consider this a do-or-die moment for the 92-yearold retailer with the anachronistic name, as losses mount and margins in its core mobile business continue to thin.

Indeed, RadioShack’s first-quarter financial for the period ended March 31 included a $43 million loss compared with an $8 million loss last year, a 7 percent decline in net sales to $849 million, and a 5.7 percent drop in comp-store sales.

But Wall Street appeared willing to give the new team a chance, with RadioShack’s share price rising nearly 5 percent to $3.29 after the earnings call.

In a research note, Janney retail analyst David Strasser blamed the chain’s woes on “a long list of top management that sold out the long term for near term profits.” But based on the latest CEO’s remerchandising track record at Duane Reade, Walgreens’ New York-area drugstore chain, he believes that “listening and giving Mr. Magnacca the benefit of the doubt, here, could prove worthwhile.”

On the earnings call, chief financial officer and former interim CEO Dorvin Lively attributed the red ink largely to the company’s postpaid mobile business. Handset unit volume fell 25 percent year over year amid reduced promotional activity, among other factors.