RadioShack Is Cleaning Up Its Stores in Bid to Revive Sales

BusinessWeek
RadioShack 2Q loss widens, CFO leaves
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FILE - In this Wednesday, October 20, 2010 file photo, a shopper leaves a RadioShack store in Brunswick, Maine. RadioShack reports quarterly earns on Tuesday, July 23, 2013. (AP Photo/Pat Wellenbach, File)

In 2007 the satirical Onion newspaper published a parody interview with RadioShack’s (RSH) then-chief executive officer, Julian Day. “There must be some sort of business model that enables the company to make money,” the fake interview imagined Day saying, “but I’ll be damned if I know what it is.” Six years later, current CEO Joseph Magnacca still faces the all-too-real challenge of figuring out how the money-losing electronics retailer can coexist with big-box stores and online rivals. RadioShack’s $96 million in red ink during the first half of 2013 was more than triple the prior-year period’s loss. The chain’s stock market capitalization is 2 percent of what it was 14 years ago.

Magnacca’s solution is “Let’s Play!” a business plan designed to make the retailer “a neighborhood technology playground.” Prototype stores have a cleaner look, a change from the tangled collection of cables, cords, adapters, and batteries that most customers associate with RadioShack. Shoppers can connect their iPhones to a wall of speakers for test drives, while sensors on the gear selected call up information on a screen above. Five such stores reimagined for upscale, high-traffic areas such as Manhattan’s Upper West Side are already open; 15 more are scheduled to open by the holiday shopping season. The company plans another 2,000 less-slick store redos (without speaker walls and interactive features), starting in the New York area, New Jersey, and Texas.

Cutting clutter should be easier, since Magnacca plans to reduce the number of stocked items at stores to 3,000 from 4,000, a tactic retailers sometimes use to raise cash. The CEO, RadioShack’s fourth in three years, announced the hiring of turnaround adviser AlixPartners, naming one of the firm’s managing directors, Holly Etlin, as interim chief financial officer. The chain has also hired investment bank Peter J. Solomon to explore a refinancing of its debt to reassure vendors and landlords, says a person familiar with the situation who was not authorized to speak on the record.

The inventory selloff shouldn’t be viewed as a warning of a cash shortage, the person says, but as a sign that RadioShack’s new merchandising strategy doesn’t require many of the old products that are being liquidated. RadioShack believes it has enough cash to last through 2014, the person adds.

Nonetheless, Standard & Poor’s downgraded RadioShack bonds in August to a CCC rating, suggesting a possible default within 12 months, “absent a major business turnaround or increased liquidity.” Michael Pachter, a managing director at Wedbush Securities, says that running 4,311 U.S. stores is so costly that RadioShack can’t match Amazon.com (AMZN) or Best Buy (BBY) prices. “It’s an electronics convenience store, and it’s the end of an era for those,” Pachter says. “My mother went there to get replacement batteries for a hearing aid, but my kids get their batteries on the Internet.”

As of June 30, the company had $432 million in cash and $386 million of credit available. Against that, it reported $628 million of liabilities due within a year, now down to $547 million. Its 2012 annual report listed obligations of $834 million due in a year, now down to about $450 million.

RadioShack began life in 1921 as a Boston-based mail-order retailer serving radio officers aboard ships and amateur ham operators. It opened the first U.S. audio showroom in 1947 and sold the first mass-produced personal computer, the TRS-80, in 1977. In the 1980s it became one of the first retailers to sell mobile phones, which still account for half its sales. In the 1990s the company’s attempts to expand beyond its diminutive stores included its Incredible Universe electronics superstores and the Computer City chain. Both ventures flopped. RadioShack’s shareholders have paid the price. The stock has fallen from $78.50 in December 1999 to about $3.25 currently. Its market capitalization is just $322 million—down from a peak of $16 billion in 1999.

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