At its height Radio Shack was a business disruptor taking electronics to the masses through a sophisticated structure of retail franchising. Founded in 1921 by brothers Thedore and Milton Deutschmann who determined that there was a market in providing equipment for what was then known as amateur radio. They opened their first store on Brattle Street Boston not far from the site of the Boston Massacre and chose the name “Radio Shack” in reference for the wooden structure that housed a ships radio equipment.
In 1962 the business was purchased by Tandy Music Corporation (which itself was a leather goods company) after the business found itself in financial distress. Tandy picked up the business for $300,000 and the conversion of the business began.
Today the business has more 36,000 employees with turnover in 2010 of $4.4 Billion but like many retailers the business is in trouble. On Friday it was announced that the company had reached agreement with a group of lenders to provide the company with a cool $120 million so it could restructure its existing debt with enough money to try and trade through the normally busy holiday period. In fact, like many retailers, the holiday season is usually a peak period for sales with many retailers making more money over Christmas and the New Year season than at any other time for the entire year.
The problem for Radio Shack isn’t that there is no demand or that the final crisis and recession has stopped consumers from shopping it’s due to the fact that consumers have a significant amount of choice when it comes to where they buy their product from and, increasingly, they are going online to retailers such as Amaazon.com.
The other challenge is that Radio Shack now relies very heavily on smartphones and tablets for about half their sales but that too is fraught with danger as margins becoming increasingly tighter. One commentator even lamented that there was an oversupply of smart devices on the market that was causing a significant glut and therefore tighter margins. Yet, there are products that carry higher margin yields such as high end digital cameras and GPS systems.
The question remains whether or not Radio Shack can survive and maybe it should take a leaf out of the book of Australia’s JB HI FI. A similar business in terms of product sell, the company takes a broad and appealing marketing strategy and successfully sells itself as an outlet of all things to all people when it comes to electronics.
So, what lessons can entrepreneurs and start-ups learn from the Radio Shack collapse?
Think early on about not being reliant on single strands of low margin income
Get a marketing plan in place that appeals to a broad range of consumers not just a small group
Don’t attempt to stick with the same business model as failure can happen often in the life of a business when you fail to recognise that what you have always done is always the problem (Radio Shack has collapsed before which forced the sale to Tandy in the 1960’s)
Yes it is wise to be seasonal and focus on doing well from the Holiday periods where consumers buy – but try and spread your risk in terms of sales profitability across the whole year and not just one part of it.
It pays to compete online and try and out deal and out market your online competitors. Brick and mortar operations are fine but they run a lot of cost based risk
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