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The Real Challenges That RadioShack Faced

I served as VP of merchandising, CE products, for RadioShack from September 2010 to December 2013. This was the last corporate position I held, and after 35-plus years of experience in our industry, I decided to hang out my own shingle, forming my own consultancy in 2014.

Much has been written about “the aftermath of RadioShack,” including a fair amount of Monday-morning quarterbacking, and many of the opinions I’ve read have a level of merit. I could also share my opinions on what RadioShack could have done differently, though most everyone seems to have covered it all, from changing the name, to an over-reliance on mobile sales, and just about everything in between. The most recent articles by Steve Smith and Alan Wolf pretty much sum it up very nicely.

So why did I decide to write this article? Because virtually everything that’s been written covers how RadioShack should have reacted to address the challenges it faced. What I’d like to offer is a perspective of the challenges themselves: the “causes,” if you will.

My three years at RadioShack were interesting, to say the least. During my tenure, we had four CEOs, the last being Joe Magnacca. Joe is a dynamic merchant who brought an enthusiasm and excitement that the company sorely needed. Suffice to say, he inherited a company that was already on life support.

But there was no lack of effort. We worked hard to improve our brand and product portfolios, and actually merchandised some of the most iconic brands in our industry. On the CE side, we assorted Beats and other high-profile, hip brands. We added fitness products, including Fitbit. We introduced other new categories, like wireless speakers, and revamped a whole host of private brand products. In wireless, we added Verizon and expanded our assortment of no-contract phones, including our own private brand.

We also reviewed every SKU in the company and rationalized many poor performers out of the stores. Merchandising was very, very busy.

While we were addressing our brands and products, Joe and the team worked quickly to introduce the new format. These stores were fresh and exciting and performed very well. The problem was they represented less than 2 percent of the entire chain. As the song goes, too much, too little, too late …

So what happened? For that, we need to look at what’s been happening for quite a while in our industry:

The Digitalization Of CE

There’s no doubt that the impact of digitalization has resulted in myriad products that far out-perform their ancient, analog siblings. From the PC, to amazing high-resolution HDTV images, to smartphones that place awe-inspiring communications and computing power in the palms of our hands, digital performance standards have forever changed these products and how we interact with them. However, the ability to produce products that have true, meaningful differentiation has become a very serious challenge. Digitalization has resulted in the homogenization of products, and the digital divide has resulted in one big sea of sameness. When all else is equal, price becomes the only differentiator.

This transformation really began with the mass acceptance of the personal computer, a product that forever reshaped profit margins in our industry. As a merchandising leader with CompUSA, I couldn’t believe we were expected to sell products that sold for more than $1,000 and lose money doing so! That model never changed, and it’s a shame that retailers are expected to lose money selling a product that provides so much communication, productivity, and entertainment power to consumers.

The Changing Vendor Landscape

In the ’70s and ’80s, there were many products from many manufacturers. There was a specific product set to perform a specific task. It’s different today. While product consumption is up, the breadth of product types being consumed has narrowed, as wireless devices have cannibalized other single-use products, such as digital cameras, GPS devices and MP3 players. And right now, Apple and Samsung are the real influencers of our entire industry.

A few short years ago, many key vendors practiced selective distribution. This allowed a broader set of retailers to compete and make money. Today, virtually every key product is available nearly everywhere, from every type of retailer, including the vendors themselves. A few months ago, I worked on a particular project for a client. My research revealed that the big three carriers had more than 5,500 combined locations. Apple has more than 400 stores, and other vendors are opening stores as well. It’s tough enough to compete against other retailers and ecommerce outlets. Now we have to compete against the very vendor whose products we assort in our stores. In RadioShack’s case, many of the carrier stores were a stone’s throw away from a RadioShack store.

Wireless Phones Are A Wacky Business

The economics of selling contract cellphones has always been wrong for retailers — never mind the fact that it’s a business where you don’t own the customer. Customers may buy the phone from you and sign a contract in your store, but after that, they believe they are the carrier’s customer. Hard to argue when they get a bill from the carrier every 30 days.

There are probably a few other challenges, but you get the picture. RadioShack is the latest retailer to succumb to these challenges. Mark my words: There will be others, because in truth, these are big deals that are hard to overcome.

John Lostroscio is an industry veteran with more than 35 years of experience in merchandising, product management, marketing services, and sales leadership with a diverse group of retailers and manufacturers. Today he is the principal of his own consultancy, Lostroscio & Nonce, focusing on merchandising and product solutions. He can be reached at [email protected].