Business

What pushed Radio Shack into bankruptcy?

After two years of unsuccessful turnaround efforts, RadioShack filed for its second bankruptcy on Wednesday, citing poor mobile sales. 

A sign for a RadioShack store is seen in the Brighton Beach section of the Brooklyn borough in New York in March 2014. The electronics chain filed for its second bankruptcy in two years on Wednesday, closing 200 stores.
Shannon Stapleton/Reuters/File | Caption

There is a chance that your “neighborhood electronics convenience store” might disappear forever. After two years of unsuccessful turnaround efforts, RadioShack filed for its second bankruptcy on Wednesday, citing poor mobile sales. 

The nearly 100-year-old chain has had no shortage of competitors throughout the years, but its downfall in the recent decades, observers say, stems from its failure to distinguish itself amid technological change, with its appeal in convenience and price eroded by both online and other physical competitors. 

Though RadioShack’s walkie talkies, pocket arcades, and cassette decks captured the heart of electronics enthusiasts years ago, the chain has been caught off guard in recent years with the shift of taste to portable devices and the increasing number of competitors grown from the trend, according to Willy Shih, a professor of management practice at Harvard Business School. 

“Originally, they served a niche market, and they actually developed loyal following with hobbyists. That was their first core audience, and they were really pioneers in the category,” Dr. Shih, who specializes in industry evolution, tells The Christian Science Monitor on Thursday. “[But] the technological trends have changed so that people don't use the discrete components, things like the amateur radio have lost their following. I would say for the last 20 years, they have been struggling to find a new audience.” 

As a result, RadioShack has shifted to offer a wide range of accessories nowadays, including cables, batteries, and headphones. Yet, with the rise of online giant Amazon, RadioShack’s core label of being convenient is gone as well, which has gradually led to its decline, according to Matt Sargent, senior vice president of retail at market research firm Frank N. Magid Associates.

“That convenience benefit was taken away by Amazon, and the ability that you can get a component by ordering from Amazon eroded any the differentiator that RadioShack could pursue,” he tells the Monitor. 

Such a “challenging inventory portfolio,” as Mark Cohen, director of Retail Studies at Columbia Business School, calls it, has also made RadioShack vulnerable to competition from around-the-corner drugstores, cell phone carrier stores, and even Apple stores, in addition to the big-box companies such as Amazon and Best Buy. 

“The consumer electronics business is very tough because it is highly dependent on emerging technology, and RadioShack doesn't and never represented that. RadioShack has only been an aftermarket player whose businesses subject primarily on accessories and parts and things of that sort,” Mr. Cohen tells the Monitor. “The margins of that business generally speaking is very thin, and there's a lot of availability for the products that RadioShack represents itself as.”

The electronics chain, acquired by General Wireless after it filed for the its first Chapter 11 filing in 2015, will close approximately 200 stores and evaluate options for the remaining 1,300, according to the company’s statement. Instead of selling other retailers’ products, for the past two years, the company has focused on expanding its private-label offerings, which now makes up the majority of its business. 

“[In 2016], we…sold more than a million RadioShack private brand…audio products to consumers across the country,” RadioShack President and CEO Dene Rogers said in the statement. 

While the move had helped RadioShack reduce operating expenses and grow gross profit, Mr. Sargent says the strategy of private label is “misplaced” within consumer electronics industry and not helpful enough to “save” RadioShack, considering the company’s branding was not particularly strong. 

“Private label is a way that retailers can control their cost, distribution and get more customization for their customers and differentiate themselves. In general, I think private label is a good avenue,” he tells the Monitor. “But with consumer electronics, that's a struggle. To build up a brand in consumer electronics unit that is more of a component, there's more brand trust involved into the categories.”

Instead, a partnership with large discount retail stores, such as Target or Walmart, who are looking to serve the market in the urban areas that it has stores in, could potentially have prevented a decline for RadioShack, Sargent says.

“Could RadioShack have had resistance on its own, I think the answer is no,” he says. “But I think if RadioShack had partnered with an entity… that potentially could've allowed them to leverage all that footprints and deliver to an audience that is very interested in buying electronics… Thats what they needed, they need that foot traffic that they just weren't getting.”

There is still benefit to being a brick-and-mortar store, Sargent says. But to survive and thrive in the changing retail world, Shih says RadioShack is a good lesson for others. 

“All businesses operate within a changing environment, and the real challenge is are you going to adapt your model as the environment changes,” he says. “The major lesson is how important it is to maintain flexibility and constantly be experimenting with new areas and trying new things, and you have to move pretty quickly… This is a challenge for many companies, as it is always hard to walk away from your core and look into new things.”