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Essay: RadioShack Corporation

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  • Published: 17 September 2015*
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Executive Summary
Over the past decade, RadioShack Corporation has been a leading chain within the retail consumer electronics industry recognized by consumers all around the globe. It has evolved from being a small startup company incorporated in 1967 in Delaware, United States to becoming a multi-billion dollar company that employs over 27,000 employees. The group owns 4,200 US company operated stores, 250 stores in Mexico and over 900 authorized dealers and other outlets across various countries in the world.
Their main involvement is with consumer electronics good, selling innovative mobile technology products and services as well as products related to home and personal technology and power supply needs. RadioShack offers to its consumers a leveled variety of wireless phones and other electronics products and services from national brands to own company branded items and other leading international recognized brands.
However, RadioShack has been facing tremendous challenges lately due to a series of issues of which includes a declining industry-wide consumer electronics environment and a soft mobility market, unforeseen economic volatility, a shift in the method of purchasing for consumers and the increase of global e-commerce acceptance and usage, bad management and excessively high operating costs. This had put the company in an operating loss of over $500m in the past three years and on the verge of filing for bankruptcy if there is no turnaround action plan to be placed in hand as soon as possible.
This report is a consulting proposal for RadioShack Corporation; the model below is used to tackle the problems that the company faces within its Marketing and Sales, Operations and Finance departments.
Retail industry and e-commerce outlook
The retail industry is one of the most dominant and important industries in the world. It employs more than 10% of the US workforce, which is the equivalent to 15.2 million employees. The industry has seen higher growth in emerging markets such as China, Brazil and Mexico. According to Plunkett Research, retail sales have reached $5.1trillion during the financial year of 2013 in the United States. As per research undertaken by the U.S Census Bureau in 2012, sales of retailers selling electronic goods and general products have accomplished $1.2 trillion and its total sales of the industry were at $4.48 trillion
There is no questioning that the landscape of the retail industry has drastically changed in the past years. Demographics and behaviors are changing, and consumer-spending priorities reveals the atmosphere of the global economic uncertainty. As a result of these changes in trends, in-store consumer traffic has been slowing down for brick and mortar shops and the cumulative sales having been shrinking by billions of dollars. Many consumer electronic brands have suffered a drop in their brand value. This is a sign for the industry to start taking retail brand experience more seriously.
Meanwhile, competition between retailers has become tougher than ever. As a result, retailers with no competitive advantage stand no chance of competing within the industry. Megastores have been battling one another on every major corner, while digital marketers have been stealing customers from brick stores. Some customers have been visiting retailer stores as showrooms just to touch and see the product itself, and then make the purchase order at a lower cost online using Amazon or EBay.
Two aspects have triggered growth in online shopping. First, the number of Internet fast connections in the United States households and corporations that jumped to over 90 million in 2013, also the 180 million wireless connections that without doubt made online shopping faster and certainly more interactive. Secondly, the marketing of mega online giants such as Amazon (the fastest growing companies in the world whom accomplished $61 billion revenues in 2012), in addition to the e-commerce efforts of the traditional stores such as Wal-Mart and Home Depot. The connection speed is of great essence, even during working hours of customers whilst they are at the office, since a large portion of customers take some time off during their working hours in order to shop online from their desktops. The number of Internet users has surpassed 2.4 billion worldwide.
The e-commerce market has reformed the way business is executed, whether in retail, B2B, locally or globally. Prior to the Internet, success within the retail industry was concentrated on location, location and location. At the moment, the Internet is the global marketplace, giving a chance for even small retailers to have not only a national but also a global presence and significance. The scope of e-commerce is immeasurable and has become a fundamental part of the global economy.
Where did RadioShack go wrong?
As observed from the above graph compiled by Bloomberg BusinessWeek that the company’s market capital has dropped from over $15bn in the financial year of 1999 to less than $100m in 2013. The company has lost 98% of its share value
According to research and findings, there were a series of unfortunate reasons for that drastic drop over the years. In March 2000 there was the Dotcom Bubble that burst which led any Internet affiliated company to crash. At that time RadioShack was selling computers and relevant equipment, so their share prices had fallen amongst all other companies that had a relation to the Internet and computers.
Between 2005-2006, the technology worldwide had flipped to wireless which basically led to most of the inventory that RadioShack held became obsolete, making the company write-off its inventory and their earnings plunged 62% This occurred because they did not adapt to the technological changes, making them suffer a big loss. In 2008-2009 the financial crisis occurred, growing fear in the global markets, making shareholders and investors dump their shares leading many companies into financial distress and even bankruptcy.
Between 2009-2013, the company managed to hire and fire 4 CEOs to turn around the company, change the business model and cut down costs to bring RadioShack back on its feet but they had failed miserably.
Problem definition and structuring
What actions should RadioShack Corporation take within the coming 24 months to minimize their $577m net loss and further boost their revenues?
Problem Observation
Assets = Liabilities + Shareholders’ Equity
From a financial perspective, according to RadioShack 31st December 2013 annual balance sheet the company owns assets worth $1591.2m, liabilities worth $1384.8m and equity worth $206.4m, which means that 87% of the company’s assets are used to back the debt the company holds. It also means that the book value of the company is $206.4m and that only 13% of the company value is equity. On the other hand, from a fair value perspective that is ultimately based on market capital the company is valued today as shown on yahoo finance at no more than $100m.
After observing RadioShack’s 31st December 2013 annual income statement, the company has administrative expenses worth $1407.4m. After going through the notes I came to realize that it was due to compensations worth $594.6m, rent & occupancy worth $249.1m, advertising expenses worth $176.2m and others worth $367.5m. After precise calculations, these numbers account to 41% of the company revenues.
From an operations perspective RadioShack holds inventory worth $802.3m. This represents a huge problem for the company since it is categorized under consumer electronics of which are based on technology. In that case, when technology is outdated the inventory becomes obsolete. Also, the inventory valuation losses have been associated with a shift to an improved assortment of merchandise that led to write-offs causing the company a huge loss.
At the moment RadioShack is mostly selling cell phones, which is considered a severely saturated category. They are not aggressive on trending products or any sort of innovative merchandise.
From a marketing and sales perspective, the company has a very weak online presence. This basically gives them no chance of competing with online stores such as Amazon and EBay, affecting their sales and revenues, making them incapable of penetrating or tapping this opportunity to increase their sales and have a higher inventory turnover.
The stores of RadioShack are outdated; it gives the same impression of a vintage electronic store from the 1990s. The stores are considered amongst the most worn-out, antiquated and least trendy stores that exist in American retailing today. This alone does not attract any customer to visit the stores to purchase any consumer electronic items.
Another problem the company faces in terms of its sales is that its employees are completely clueless. The employees were described by an article in Business Insider as ‘the most intimidating, least-female-shopper-friendly and all-in-all scary collection of people assembled by one corporate entity’.
Solving the Problem
The first stage must be the implementation of a swift and direct action plan to tackle the problems outlined above. Firstly, consolidating the existing stores to a more manageable number, targeting 1500 stores to close, whose revenues are in decline. Secondly, removing stores which do not have sufficient through put of customer traffic. This is followed by the renovation of stores, which are generating the highest revenue and have the largest concentration of customer traffic. The short-term effects of this measure will affect the SG&A expenses, due to the redundancy and compensation payments, also breaking the current leases and contracts in place, how ever freeing up administrative expenditure in the near future, which is the biggest obstacle to surpass affecting profitability.
The online store operated by RadioShack is dated in appearance this would need to be revamped and updated to be more inline with e-commerce giants such as Amazon who have mastered the use of CRM to create a very user-friendly environment and exceptional customer experience. Possibly creating a commercial agreement with amazon to market and sell the products through their distribution channels, creating new global opportunities for sales. This can also be enhanced by the introduction of discount branch selling excess and dated merchandise at very low prices in bulk, thus recouping some of the high stock expenses.
Revamping the high traffic stores, to create an innovative shopping experience and environment for the customer, following in the footsteps of successful retailers such as Apple, who have managed to bridge the gap between a successful online and a physical marketplace. In creating this environment the revenues of physical stores can be boosted.
Creating a digital interface experience within the stores is a crucial part of the action plan, according to Deliotte, digital interfaces have influenced 36 cents of every dollar spent in retail stores, with the future growth expected to reach 50% which is the equivalent of 1.5 trillion dollars in total stores revenues. With the introduction of digital interfaces store traffic will be greatly increased, by creating a new environment for shoppers to experience.
Following on, the introduction of a mobile application for RadioShack Corporation, consumers using their digital devices during their shop has greatly increased sales according to Deliotte, making the purchasing rate 40% higher than customers who are not using their device. According to Deloitte 84% of users use their phones during a shopping trip with 22% of those users spending more as a result of digital interfaces and 75% of users saying that product information found on digital channels influenced their purchasing behaviors and brand loyalty and increases their impulse purchases by 25%.
Lastly, implementing same day fixing and refurbishment of electronic goods in store. For instance, refurbishing mobile phones and digital cameras whilst using this opportunity to cross sell other products over the counter at the point of sale. For instance fixing a digital camera and offering a discounted memory card to the customer. This leads into the next point of concern, which is to train all the staff within the company, so that they can effectively sell and solve any customer queries resulting in a better customer experience.
Conclusion
To conclude this report there are fundamental problems that have been addressed and carefully tackled. The action plan put in place has been designed in to tackle the most pressing and fundamental problems that have arisen in the running and management of RadioShack corporation. The main point to focus on is the consolidation of the stores, as this is a long-term plan, which will enable the corporation to secure a more profitable future. The second most important will be the introduction of the e-commerce business, this will pull much more customer traffic and build brand awareness in an online atmosphere, which as we have discussed is the fastest growing market. The reduction of administrative cost must be brought down to bring the company back into profitability, which can be enabled using the solutions provided. The brand must diversify and focus on the customer experience like their competitors have and been very successful.
References
Lutz, A. (2014). 4 Problems Destroying RadioShack’s Business. [online] Business Insider. Available at: http://www.businessinsider.com/why-radioshack-business-is-hurting-2014-6#ixzz3EbsDeDhc [Accessed 27 Sep. 2014].
Marketingcharts.com, (2013). Online Retail Share of Total Market. [online] Available at: http://www.marketingcharts.com/online/estimated-e-commerce-share-of-total-2014-retail-sales-us-and-europe-41500/attachment/centreretailresearch-online-retail-share-total-market-mar2014/ [Accessed 27 Sep. 2014].
Multichannel Merchant, (2014). Deloitte Digital: Ecommerce’s Impact on In-store Shopping Grows – Multichannel Merchant. [online] Available at: http://multichannelmerchant.com/must-reads/deloitte-digital-ecommerces-impact-on-in-store-shopping-grows-28042014/ [Accessed 27 Sep. 2014].
Plunkettresearch.com, (2014). Retail Industry Market Research. [online] Available at: http://www.plunkettresearch.com/retailing-stores-market-research/industry-and-business-data [Accessed 27 Sep. 2014].
RadioShack Corporation, (2013). RadioShack Corporation, Annual Report 2013. [online] Available at: http://ir.radioshackcorporation.com/phoenix.zhtml?c=84525&p=irol-reportsannual [Accessed 27 Sep. 2014].
RadioShack Corp.. [online] Available at: https://uk.finance.yahoo.com/q?s=RSH [Accessed 27 Sep. 2014].
Sandler, L. (2013). RadioShack Is Cleaning Up Its Stores in Bid to Revive Sales. [online] Businessweek. Available at: http://www.businessweek.com/articles/2013-08-29/radioshack-is-cleaning-up-its-stores-in-bid-to-revive-sales [Accessed 27 Sep. 2014].
U.S. Department of Commerce Economic and Statistics Administration, (2014). US Census Bureau E-Stats. [online] Available at: https://www.census.gov/econ/estats/2012_e-stats_report.pdf [Accessed 27 Sep. 2014].
Yahoo! Finance, (2014). RadioShack Corp. [online] Available at: https://uk.finance.yahoo.com/q?s=RSH [Accessed 27 Sep. 2014].

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