Radioshack

Company The Shack is an electronic retailer with over 6,500 locations worldwide and 35k employees, that offers an array of world renown brands as well as private brand electronic equipment. Key Findings After years of decreasing sales for the company and with the lagging economy forcing many businesses into bankruptcy in 2009, the former RadioShack somehow managed to have a 1.3% increase in sales year over year. Their gross profits had a slight increase as well while their net cash more than doubled from $116M in 2008 to $238.8M in 2009. In the letter to shareholders, C.E.O. Julian C. Day begins by pointing out one of the main strategic areas of focus: the launching of the company’s new platform – The Shack, which according to Day, helped the company eliminate the consumer perception that came with the name RadioShack: that the brand was old and irrelevant. Day also points out the company’s financial discipline, which helped the company deliver solid results, something they had not been able to achieve in recent years due to a seemingly non-existent financial strategy. Judging by this letter to shareholders one can see that The Shack’s business strategy relies strongly on the profits generated by the mobile technology and connectivity products that they are able to offer nationwide to nearly 95 percent of the American consumers. In 2009, with the addition of T-Mobile, The Shack now offers three of the top four major cellular carriers to their customers as they continue to leverage their unchallenged distribution advantage. Other key points for the company are discussed in their MD&A which points out their gross margin increase of 40 basis points and their decrease in SG&A expense, which was helped in part by their decrease in advertising expense, which can have negative effects in brand recognition, especially when the brand has recently changed. Successful Strategies With The Shack and their checkered history in operational expenses, you cannot overlook the fact that they are starting to turn the corner in this category. Although their compensation went up $38.2M in 2009 with more incentive compensation, their overall SG&A decreased 40 basis points, or $1.9M. This is helped by a decrease in rent, utilities, travel, and insurance. But it also shows a drastic drop of $21.5M in Advertising as well as substantial drops in matching contributions, and recruiting, training and employee relations, which can eventually backfire in the long run. It is needed to point out that although their spending in Advertising dropped dramatically, it seems as if the company strategized properly in this case as they decreased their advertising in Q2 with the anticipation of a dramatic increase in Q3 due to the company re-branding to “The Shack”. Q3 and Q4 were in line with previous years in terms of advertising. Altered Strategies The biggest change in strategy for the company was their re-branding. RadioShack has been around since the 1960’s and they seem to have a core set of customers who are loyal to the company and recognize it as a leader in technology and telecommunication equipment. However, with their re-branding to The Shack, the company finally admitted that their brand was outdated. Research showed that the general consumer perception was that the company was far from cutting edge and because of the “radio” reference in their brand, they were viewed as an outdated company due to their brand no longer being relevant in the marketplace. With their re-branding, the company showed a fresh strategy that catapulted them into the 21st century and will most certainly expand their customer base with the younger generations being able to identify with the company more. Recommendations: The Shack needs to continue expanding their brand to further capture the younger customer segment, which will in turn bring back a generation of loyal customers who may stick to the brand for a lifetime. They also need to stay current and not let their brand become irrelevant the way they did for so many years. The company leaders need to act faster than they did in this case to avoid future mishap. In addition, the company needs to continue striving for high gross profits by leveraging their own, low-cost brand and continuing to use their huge distribution channel to their advantage to attract world renowned partners who will assist in minimizing the company’s expenses by merchandising their own sections of the store planogram. Finally, adding T-Mobile to their cellular carrier line up helped The Shack establish themselves with their own customer but if they can add the last of the big four: Verizon, which was RadioShack’s partner only 5 years ago, it will help revitalize the brand with the vast customer base that Verizon has. In addition, collaboration would help both companies with The Shack being able to offer their customers the largest and often considered the most reliable wireless carrier while The Shack’s distribution channel would benefit Verizon by bringing their products to neighborhoods where they haven’t had any presence since their alliance with RadioShack dissipated years back. Finally, although the company seems to have turned the corner into a better financial situation, risks are substantial for The Shack and their leaders need to continually keep an eye in such things as employee satisfaction. Retail in general has a high turnover ratio and if The Shack doesn’t provide the right amount of training and employee relation activities, in addition to a competitive compensation, they will never attain a loyal employee force and will struggle to retain their top employees who will continue to seek employment with The Shacks competitors.