RadioShack (NYSE:RSH) saw its net loss widen to $112 million in Q3 2013 compared to $47 million in Q3 2012 as it works on a turnaround strategy to revive its business. The company has been a prominent player in the retail business for over 90 years but has been struggling recently to survive in the industry with rising competition from online retail giants such as Amazon (NASDAQ:AMZN). At $805 million, Radio Shack’s net sales declined by 10.3% y-o-y on account of lower comparable store sales.
Within its US company operated stores, RadioShack’s signature platform and mobility platform sales were down 4.6% and 11.6% y-o-y, respectively. With a 17% y-o-y decline, the consumer electronics platform was the hardest hit on account of lower laptop sales and the company’s strategy to reduce inventory and sales in the category.
In addition to lower sales volume, the inventory action taken during Q3 2013 lowered RadioShack’s gross profit by 7.8%. The company took a strategic decision to accelerate the removal of duplicate and unproductive inventory during the quarter. Its conscious decision to pull out this inventory from its stores and liquidate it through third-party channels led to a $47 million write down in the quarter.
RadioShack devised a new strategy earlier this year with an aim to turnaround its business. Though it claims to have made considerable progress in a number of areas, it believes that there is a lot of work to be done in addressing a great number of legacy operational issues. Thus, it does not expect any material benefit from its turnaround strategy for the next few quarters.
RadioShack’s turnaround initiative is centered around the following key areas -
1. Re-positioning its Brand: Efforts To Connect With A Younger Audience
The main focus of RadioShack’s initiative is on re-branding the chain and re-defining what it stands for. The company is making efforts to tap into the younger demographic and the Do-It-Yourself (DIY) customer segment. The latter became disenchanted with RadioShack following the 2009 re-positioning exercise by the chain and has largely abandoned it.
RadioShack aims to connect with a more youthful audience through partnerships with key vendors and celebrities. It claims to have benefited from its partnership with DrRobin Thicke in May 2013 to promote the Pill speaker from Beats bye. It entered into another Beats promotion during the MTV Video Music Awards featuring tennis star Serena Williams and rap artist 2 Chainz. It subsequently launched co-branded commercial with several celebrities, including Michael Phelps, Steve Aoki, Lil Jon and Alexis & Fido. RadioShack claims that these promotions are activating a new consumer base which will help drive its sales growth.
2. Revamping Product Assortment
RadioShack is working towards removing duplicate inventory and unproductive inventory through promotions and clearance events. In Q3 2013, it reduced the number of stocked items in its stores from approximately 4,500 SKUs to 3,500. In addition of getting rid of old products, it is carrying fewer products in order to reduce clutter and enhance customer experience at its stores.
The company claims that it has identified those SKUs that drive demand in a given store’s trade zone so that it can customize the assortment and focus the inventory on products that generate the majority of its sales and profits. It is also rationalizing the number of private brands in its portfolio. Though revamping its portfolio increased RadioShack’s cost of goods sold in Q3 2013, the company believes that it was an important step to enable it to reset the product mix in time for the holiday season and is inline with its long term repositioning strategy.
3. Reinvigorating Its Stores
RadioShack has been working towards converting its stores into a more relevant outlet for consumers. It opened its first concept store in July this year in an effort to make a big impact on the electronics shopping market and improve the Radio Shack customer experience by promoting an interactive experience in its stores. These concept stores offer interactive areas such as the speaker wall where shoppers are able to connect their mp3 players and other mobile media devices to experience technology.
The company claims that these stores have exceeded its forecast and generated double digit comparable store increases since the conversion date. RadioShack already has concept stores in California, Massachusetts, New York and New Jersey, and has 10 locations currently under construction for new concept stores (across the nation), with which it aims to reinvigorate its store experience. It plans to have over 100 concept and brand statement stores by the end of the year.
4. Improving Operational & Financial Efficiency
In an effort to lower costs and increase efficiency across the company, RadioShack has made changes to its distribution system. Initially, its stores received shipments once a week which led to weak in-stock performance. In Q3 2013, it implemented a program where the stores can get up to 3 shipments per week. Additionally, shipments are released as soon as a store’s replenishment needs fill a box as opposed to its initial practice of holding everything for a store for a weekly shipment. RadioShack believes that these small changes can have a material impact in improving its performance and enhancing customer experience.
A reduction in store count and lower severance costs reduced RadioShack’s SG&A expense to $343 million in Q3 2013 compared to $354 in Q3 2012.
We are in the process of updating our price estimate of $2.87 for RadioShack.