Will 1,100 Stores Closures Save RadioShack? Probably Not

Mar 4 2014, 1:40pm CST | by

It’s been a tough few years for RadioShack topped off with an ugly 2013.

The retailer announced fourth quarter and full year 2013 earnings today. The Fort Worth, TX-based company posted a$344 million operating loss for the year, and a same-store-sales drop of 19% for the fourth quarter. Not only that, RadioShack will be closing up to 1,100 stores across the country, and that may not be the end of store closings.

The dismal news is killing the company’s stock. RadioShack shares are plunging more than 16% to about $2.26 this afternoon.

What’s going on with RadioShack lately? The electronics retailer has long been challenged by e-commerce businesses like Amazon, but things have been particularly tough for RadioShack of late.

It may be that time is running out for the company. Last year it named Joseph C. Magnacca as its fourth CEO in three years. Magnacca was formerly a Walgreen Co executive before joining RadioShack.

On the call with investors today, Magnacca said disappointing earnings were the result of poor foot traffic, fewer shopping days between Thanksgiving and Christmas and bad weather. Surely, those are reasons just about any retailer could cite, but RadioShack’s quarter was particularly bad.

Magnacca was quick to point out that his turnaround plan for RadioShack, which he announced in July, will take time and that results will vary.

Here’s a quick breakdown of his plan:

  1. Repositioning the brand. This concept is exemplified by that 1980s Superbowl ad RadioShack won much deserved acclaim for.  The company is promising is new, snazzier version of itself.
  2. Revamping the product assortment. In short, give customers more products they want and get rid of stuff they’r not buying. Magnacca promised real changes in product this summer, and noted the company is moving back to its “roots”by offering newer products ahead of the curve. He’s also betting big on his employees who he says are capable of educating consumers on new products.
  3. Reinvigorating the stores. Some RadioShack stores are getting makeovers. Well lit, clean lines and modern design will highlight top products. These concept stores include things like interactive speaker walls, and live devices that customers can use.
  4. Operational efficiency. 1,100 store closures shrink company owned stores by about 25%. Magnacca says these were the lowest performing stores, and ones that were expected to generate losses. The company still has about 4,000 locations.
  5. Financial flexibility. New financing of about $835 million from lenders including GE Capital. The financing includes $585 million in a new asset-based lending facility, and a $250 million secured term loan.

So will it all work?

Brian, Sozzi, CEO and Chief Equities Strategist at Belus Capital Advisors, doesn’t think so. He says the 1,110 stores closures are just the beginning of RadioShack’s slow demise. “I think they will be gone. This is just the first wave. You’ll see more closures over the next few years, then it will be out,” he says.

What about all of Magnacca’s big plans? Sozzi points out that RadioShack’s new concept stores are hardly new concepts at all. “They’re like all the old RadioShack stores but with a new paintjob,” he says. Plus, the concept stores won’t be available in all locations.

It may take a lot to keep RadioShack alive. Magnacca has already been successful on they marketing and branding front with a handful of successful commercials. The challenge, however, is to make sure that branding message is translated in stores, and ensuring that consumers who visit are not disappointed to see the same old RadioShack.

Source: Forbes Business

 
 
 

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