What Happened to RadioShack: The Decline
It is always a sad day when companies with illustrious histories go under, and that was the case when RadioShack filed for Chapter 11 protection under U.S bankruptcy law in February of 2015. With over 90 years of history behind them, it was sad to see what was once a giant, fall. RadioShack was a retail electronics company that had lots and lots of stores not only in the U.S but all over the world as well from nearby countries such as Canada and Mexico to those on the other side of the world such as Australia. When they were in their pomp, they enjoyed tremendous success such as from the CB radio craze in the 1970s, which saw it feature in many popular hit songs in that time. They also initially dabbled in the PC market and enjoyed initial success, although they never did press this success home. However, after the early success of their early years, a combination of poor strategical decisions by the management as well as missed opportunities saw them begin to struggle and eventually they folded. By the time we ushered in the new millennium in 2000, the writing was on the wall really, and although the company tried to reinvent and reinvigorate itself in the ensuing 15 years, they just couldn’t stem the tide. After a poor run of results that saw the company post an unprecedented 11 consecutive quarterly loses, the company did finally go under. This article will look to take a look at what happened to RadioShack and led to their decline, with the help of the subject matter experts over at runrex.com.
One of the reasons that has been put forward as to what led to their decline was their store concentration. The company, as mentioned above, had lots of stores, with more than 4,000 of them in North America alone. Having lots of stores is not a bad thing in itself; in fact, it can be a strength rather than a weakness. However, the problem here had something to do with the concentration of the stores rather than their number. As is revealed in discussions over at the excellent runrex.com, many of their stores were located very close to each other which became a major issue as far as the company was concerned. There were areas that had as much as 25 stores within a s5-mile radius as was the case in Sacramento California, with this being a common theme as far as they were concerned. With many of their stores located so close to each other, it meant that they cannibalized revenues and profits from each other which led to losses. This made it very costly to maintain this many stores and it definitely contributed to their decline.
Yet another thing that has been attributed to their decline is their inability to keep up with online competitors. As per the gurus over at runrex.com, RadioShack was predominantly a brick-and-mortar retail store and the suffered badly at the hands of online retail stores such as eBay and Amazon. With these online retail stores, electronics and electronic parts were not only cheaper to buy, it also became very convenient to them as they could buy from the comfort of their houses and have them delivered anywhere in the U.S. The growth of online retail stores was definitely one of the major things that contributed to their decline. We have talked about store concentration, but another thing that led to their decline was product concentration. The company had over the years shifted towards selling cell phones, and by 2014, about 50% of their sales was accounted to by cell phones alone. When the iPhone hit the market in 2007, the fact that they were so reliant on cell phones became a big issue. The popularity of the iPhone badly damaged their profit margins as is the fact that many customers began to gravitate towards buying phones through wireless operators.
Other than external factors like the ones above, another thing that led to RadioShack’s decline was due to financial missteps. In 2012, when the company needed significant financial infusions in order to stay solvent due to a series of negative financial results, they ended up obtaining a line of credit worth $585 million from GE Capital and $250 million from Salus. The later deal with Salus did the most damage as it came with a caveat that RadioShack could not close more than 200 stores every year without the permission of Salus. This meant that the company couldn’t close the number of stores they wanted to in order to stop them from hemorrhaging cash and as such continued to leak cash and eventually they went under. As ever when a company files for bankruptcy, there has to have been management issues, which is yet another thing that led to their decline as covered over at runrex.com. The fact that they were in constant flux as far as management is concerned definitely didn’t help their cause as it meant they never had a fixed strategy to work around. The fact that they changed their CEO seven times between 2005 and 2014 contributed to their fall as it brought with it an element of confusion in terms of planning and strategy.
They say when it rains, it pours, and from the discussion above, it is clear that when it started to go wrong for RadioShack, it really did go wrong and it was no surprise that they finally went under. As usual, there is more to be found on this and other related topics over at the ever reliable runrex.com