Jeff Kagan: Can Radio Shack Recover Before It’s Too Late?

Jeff Kagan |

Radio Shack (RSH) said on Tuesday they will close roughly 20 percent of their stores. What does the future hold for this long time electronics giant? We’ve seen this story before. Best Buy (BBY) is just one of many examples as they struggle to recover. Circuit City wasn’t so lucky. So what is the future of Radio Shack?

We all know how the Internet has changed everything. Companies like Amazon.com (AMZN) and eBay (EBAY) grow like crazy, eating everyone’s lunch, while it seems more traditional retail stores struggle and even disappear one after the other.

This has been a story we have been discussing for 20 years. The Internet started its mainstream push to reinvent the entire retail establishment, worldwide around that time. There were plenty of Internet failures, but there were also plenty of successes and they are changing the way people compare and shop.

We continually watch big name retailers lose, one by one to the Internet giants. However not all lose. There are also plenty of traditional retailers who are still growing like crazy and doing strong business. These come from every corner of the marketplace serving both the high and low end.

So what is the problem at the companies like Radio Shack who struggle? And what can they do in order to recover?

That’s the million dollar question and the answer is not all that complicated. Find the right leadership who understands the new challenges and opportunities, and who is willing to change the company thinking and update the brand image in the marketplace.

Let me give you one clear example. AT&T (T) and the Baby Bells were the leaders in the telephone business for well over 100 years. AT&T handled long distance nationwide and the baby bells, local phone service in regions. Of course they had no competition so it wasn’t as difficult to maintain that position.

Then the world changed. Competition came. First it was companies like MCI and Sprint (S) on the long distance side. They were tiny competitors aimed at AT&T. The baby bells saw this and in the early 1990’s decided to prepare. So they focused on improving their relationship with their customers and freshening their brand and offerings. It worked. Today they enjoy a much stronger customer relationship.

AT&T decided since it was going to go into competition with the baby bells they had to change as well. However they changed by modernizing their offerings. They didn’t focus on repairing their relationship with customers and refreshing the brand. That was the mistake.

Through the 1990’s, AT&T was under attack, yet it still got into other businesses and continued to grow. They got a new CEO, became the largest wireless company and the largest cable television provider when they acquired TCI out of Denver. This helped them compete with the brand new Americast television service from the Baby Bells.

We thought things looked good. Then the Telecom Act of 1996 set up the rules for competition moving forward. It said both AT&T and the baby bells would be able to sell the same local and long distance services and compete with each other.

That was the world we thought was coming. That was before anyone knew the Internet and wireless revolution were about to transform the entire industry virtually overnight.

We all thought everything was looking good at AT&T until we suddenly realized it wasn’t. AT&T was failing. Losing to the Baby Bells. So over the next few years they spun off their wireless business, which then became Cingular. They sold their cable television business to a small cable TV company called Comcast. They lost consumers to the baby bells as well.

So all that was left at AT&T was a small, business services company. The company had failed, had shrunk, and was now lying on its deathbed. It was a sad and depressing time.

Actually it was sort of like the Radio Shack story today. What happens next to Radio Shack is what is most important.

In AT&T’s case, one of the small Baby Bells, SBC out of San Antonio Texas decided to make a play. They acquired the failing AT&T, but they didn’t stop there. They also acquired BellSouth and Cingular over a couple short years. They seemed to transform from the smallest to the largest of the Baby Bells.

What happened next was a stroke of genius. SBC changed its name to AT&T. It changed the Cingular name to AT&T Mobility and kept the headquarters in Atlanta. It moved the San Antonio HQ to Dallas for more good workers, more growth potential, and then it started to rapidly grow.

AT&T CEO Ed Whitacker retired and was replaced by another SBC fire starter Randall Stephenson who has grown the company to incredible heights during the last decade. He updated and refreshed the brand and the entire experience with the customer. The two of them transformed AT&T from dying on the vine to one of the two largest and most powerful companies in the United States.

So a weakened company lying on the deathbed does not mean it’s over. It just means it’s time for some major changes. It’s time to transform the company to compete and win going forward before it’s too late.

Look at Best Buy as an example. Best Buy has too many very large stores. They must shrink their store footprint and increase sales. Something they do indeed seem to be making progress at. It takes too long, but they are heading in the right direction.

The same solution could work at Radio Shack. Except they have small stores. So they have to increase their tiny store sizes. Which means they may have to close more, smaller stores and replace them with fewer, larger stores. And reinvent their Internet and online presence. Then they can grow from there.

Is Radio Shack finished? No they are not. Not as long as they believe they are not finished. Not yet at least.

It all depends on what they do going forward. They still have one of the oldest and best-known brands in the business. Just like AT&T did. However it needs to be updated and refreshed, just like AT&T did.

Radio Shack tried to become the number one retail environment in the wireless space. It didn’t work. Customers didn’t know that. Customers follow their marketing noses. And Radio Shack simply never busted out above the ambient noise of the industry.

They can do it. It takes new and fresh thinking. New ideas. They must modernize the brand. They must become important to the customer for some strategic reasons. That means they have to spend to reinvent. And they must be bigger and bolder and louder than the industry noise so they can be noticed.

So can they do it? Of course. The real question is “Will they?”

DISCLOSURE: The views and opinions expressed in this article are those of the authors, and do not represent the views of equities.com. Readers should not consider statements made by the author as formal recommendations and should consult their financial advisor before making any investment decisions. To read our full disclosure, please go to: http://www.equities.com/disclaimer

Companies

Symbol Name Price Change % Volume
EBAY eBay Inc. 28.21 -0.14 -0.49 10,387,550
S Sprint Corporation 8.17 0.12 1.49 53,277,681
BBY Best Buy Co. Inc. 46.93 0.39 0.84 5,173,214
T AT&T Inc. 39.35 0.72 1.86 23,569,775
LTDH Living 3D Holdings Inc n/a n/a n/a n/a

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