Strategic Direction of Radio Shack Capstone Project

Strategic Direction of Radio Shack

Overview, Mission, Vision – Radio Shack, formerly the Tandy Corporation, was founded during the beginning of America’s new Age of Radio, in 1921. It is an American company with both corporate and franchise stores that specialize in home and small business electronics, and most recently attempting to become a major player in the Smart Phone market. Overall, the company employees about 35,000 people, and has around 7500 locations between its kiosks, franchises and corporate owned brick and mortar locations. At the end of 2011, the company reported earnings of a bit over $4 billion, but a small (2.2%) decrease in actual sales within the store. (Annual Report, 2012). The company mission statement focuses on the core of the retail business, while acknowledging that the employees are essential in achieving the mission: “Through its convenient and comfortable neighborhood stores, knowledgeable sales associates help customers get the most out of their technological products.” However, it is just this neighborhood statement that may not always align with the company’s strategic goals (Radio Shack, 2011).

Link to Strategic Direction- Clearly, the company is facing some serious problems and over the past few years has lacked a true strategic direction — do they want to focus on the low-price market as a broad-based electronics retailer or do they want to focus on a market niche? The key to their success will be maintaining a direction and finding some stability in management. However, at present it appears that their sheer numbers (almost 7500) of locations is a focused strategy that is attempting to reach a larger number of people in a broader market target. By establishing Mall Kiosks, an online presence, and several brick and mortar stores specifically located in mini-malls and shopping centers, they are differentiating themselves from the Best Buy, Amazon.com and huge electronic retailers. In addition, their past reputation has been one of a more expert location in which the staff is knowledgeable about the product and more in tune with the electronics buff as opposed to simply mass sales.

Link to Financial Performance – Indeed, the 21st century has been a series of ups and downs for the company. In 2006, the company cut its corporate workforce by 20%, and while they gave 10 day email notice that positions would be cut, employees singled out for reduction in force were given only 30 minutes to clear their desks and leave the premises, bringing widespread criticism for the company’s lack of sensitivity (Horowitz, et.al., 2006). This also came after a February, 2006 scandal in which then CEO David Edmondson resigned about questions regarding his resume, with a new CEO lasting only a few months, then in July the appointment of yet another CEO, until 2010. James Gooch held the top position until September 26, 2012, when he resided due to stock falling 80% and huge losses, causing even Gooch to note, “overall, our business performed below expectations” (Hsu, 2012).

Radio Shack has a number of proprietary brands, but has discontinued several as well. Due to competitive pressures, managerial changes and challenges, and a lack of confidence in the company, in the Spring of 2012 the company was given a “junk bond” status and in April the company’s stock plummeted to its all-time low (Peterson, 2012). For Third Quarter 2012, the company reported total net sales of $1 billion, down 1.6% from the previous year, or a net loss of $47 million, $0.47/share. The company’s interim CEO noted that:

Overall, our business performed below expectations. I am most disappointed in our post-paid mobility business where we saw a continued decline in margin performance… Over the past three months, we executed our plan to raise new capital and achieved our goal of raising $175 million of new financing. The proceeds of this financing along with existing cash will be used to repay the 2013 Convertible Notes. We believe this strikes the right balance of maintaining liquidity necessary to ensure smooth operations of our company and deleveraging the balance sheet. Our financial position and balance sheet are strong, and our liquidity exceeds $900 million… Going forward, we will continue to be focused on stabilizing the profitability of our business. The key to this effort is the gross margin and profitability of our mobility business and more specifically our post-paid business. We have a focused set of initiatives that we believe will accomplish this goal, however, it will take some time to fully address the challenges this business faces (Radio Shack Reports, 2012).

Marketing Analysis- Recently, Radio Shack began testing the use of Amazon.com lockers in certain locations in San Francisco. The idea behind the locker is that certain locations, as in convenience stores or other areas in which the Mega-Retailers are typically not located, will act as both a shipment receiving point that promises quicker delivery than a home location. By tagging on to the locker concept, Radio Shack actually opens more points of distribution and drives clients away from other retailers. Ironically, though, two of Radio Shack’s biggest competitors — Amazon and Staples, use this locker concept — yet in areas in which there is no Radio Shack, it is certainly more convenient for the customer to drive a few miles, and certainly less expensive for Radio Shack than constructing more stores during a challenging performance time (Enright, 2012).

Marketing Strategy is more of an evolving process that allows an organization to concentrate its resources in a specific direction that will give them the highest rate of return and the most likely opportunity for sales and a competitive advantage. Marketing is the overall preparation for sales, but sales strategy is important when the organization is attempting to uncover the best strategy for success. Most market strategies are developed on the idea of competition and market dominance; which is particularly difficult in certain market niches like electronics, in which there are literally thousands of competitors now that Internet and e-Commerce are so popular. The overall strategy must make a decision about growth, horizontal or vertical integration, diversification, and in which place the company has resources to remain competitive (Chernev, 2012).

Radio Shack, since 2006, has tried to use their broadening strategy to increase unit volume, lower overhead costs, and grow their square footage to be more profitable. To do this, they closed about 500 locations, finding that some were too close to each other. They needed the stores to move from an average of $350,000 per year in income to at least $500,000 per annum. To continue onto this focus of a more broad-based reach for consumers, typically away from large malls and huge mega-stores, the company opened stores in a test market called PointMobi. These stores sold wireless phones, Netbooks, IPods, and GPS systems. This concept did not work, however, because it was too close to the competitor’s strategy and had no real differentiation for the company. By 2011, the company decided to integrate the concept and products from the PointMobi stores back into their retail operations. In line with this, the company is using its strategy to push the idea of a broad base, consumer oriented, organization by actively addressing consumer and customer service issues. They have created signage in all their locations noting “How are we doing?” with toll free numbers, RadioShackHelp.com, and a way to have issues addressed regardless of the location and severity (Radio Shack BBB, 2012).

Merger or Acquisition- Despite recent failures, Radio Shack has a great deal of longevity in the home electronics industry. Generations know the brand and it still appeals to consumers as a place in which expert advice can be found. While poised for the 21st century, though, there are a number of macro and micro forces on needs to consider about the organization as a whole that indicate a merger or acquisition:

Micro Factors

Macro Factors

Changes in psychographic needs of employees and clients (shopping patterns, etc.)

Globalism and increased interdependence on foreign markets.

The Baby Boomer Generation (esp. now that they’ve aged).

Public perceptions of the industry and half-life of technology

Employee needs and desires change — more personalized HR programs.

U.S. economic lull combined with increased competitive pressures

Individual economies of scale and competitive environment

Demographic changes and a tendency towards less brand loyalty

Internet and electronic shopping, comparing, and communicating (also macro).

Lack of consistent direction and leadership consistency (over 5 CEOs in past few years).

(Blankenhorn, 2012).

To adequatley address these needs, a merger with one of the powerful bib-box stores, or even with Amazon.com as their preferred electronics end point, would be fiscally and competitively advantageous. RS is unclear about its actual plan — are they a neighborhood store or a national electronics firm? Merging would alleviate those concerns and place them in a better competitiv light.

Reward Structure- the 21st century market is rapidly evolving — Radio Shack’s core business (accessories, cables, parts) is declining as other retailers like Fred Meyer, even Lowes and Home Depot, use predatory pricing strategies to capture the market. The mobility segment is somewhat like the Old West — there are a number of retailers all vying for the same dollar and wanting to find ways to pillage the market and get the sale — any way possible. Some online retailers will adjust their margins so low that the only money to be made is from the phone contract, not the actual hardware. For Radio Shack to compete using its current model of neighborhood expertise it must push that idea- expertise. In order to ensure this to the degree necessary in the competitive market, it must incentivize its retail sales force so that they not only work to sell the appropriate product, but are retained at RS in order to build a paradigm of expertise.

Ethical Business- However, in line with appealing to a broader market, Radio Shack initiated a series of initiatives designed to push the consumer back into its stores: the Customer Service signage and program; revamping fixtures and upgrading stores; increased marketing to consumer segments, and reconnecting with the do-it-yourself customer, which has been the core basis of the company’s success for almost a century. Radio Shack has the opportunity to buttress this strategy even more by focusing on what it does well — well-trained and knowledgeable staff, solid products and pricing (forget being the newest or coolest); and more than anything, using sponsorships and event marketing to reconnect with the type of customer needed to ensure the organization’s growth (Martin, 2012). This is an ethical and moral imperative for Radio Shack in the sense that it needs clear servant and charismatic leadership from the top to both solidify and organize the future of the organization.

REFERENCES

Annual Report 2011- Radio Shack. (2012). Retrieved from: http://ir.radioshackcorporation.com/phoenix.zhtml?c=84525&p=irol-irhome

Radio Shack BBB. (2012). BBB Business Review. Retrieved from: http://www.bbb.org/fort-worth/business-reviews/electronic-equipment-and-suppliers-service-and-repair/radio-shack-corporation-in-fort-worth-tx-52110001#reasonrating

Radio Shack Reports Financial Results for Third Quarter 2012. (2012). Radio Shack News Release. Retrieved from: http://ir.radioshackcorporation.com / phoenix.zhtml?c=84525&p=irol-newsArticle&ID=1748509&highlight=

Radio Shack Mission. (2011). About.Com Retail Industry. Retrieved from: http://retailindustry.about.com/od/retailbestpractices/ig/Company-Mission-Statements/Radio-Shack-Mission-Statement.htm

Blankenhorn, D. (June 22, 2012). How Radio Shack Could Come Back. Seeking Alpha. Retrieved from: http://seekingalpha.com/article/678141-how-radioshack-could-come-back

Chernev, a. (2012). Strategic Marketing Management, 7th ed. New York: Cerebellum Press.

Enright, a. (November 8, 2012). Staples Lets Amazon Use Stores as Package Pickup Points. The Internet Retailer. Retrieved from: http://www.internetretailer.com/2012/11/08/staples-lets-amazon-use-stores-package-pick-points

Martin, V. (February 22, 2012). RadioShack Still Has Hope, but Needs a Strategy Change. Seeking Alpha. Retrieved from: http://seekingalpha.com/article/384241-radioshack-still-has-hope-but-needs-a-strategy-change

Peterson, K. (April 24, 2012). Why Does Radio Shack Still Exist? MSN Money. Retrieved from:

http://money.msn.com/stock-broker-guided/latest.aspx?post=7b27e36b-9688-403d-a8f4-159805f06b93

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