Can Radio Shack Shrink Its Way to Profit?

Radio Shack’s sales dropped 10% between 2013 and 2012, a steeper drop than the 5% decline seen with 2012 calendar year results.  And, operating results were the worse the company has seen in the last five years.  What’s a CEO to do?  On his investor call today, Radio Shack CEO Joe Magnacca announced that the company would close about 25% of its company-owned stores.  How will Radio Shack profitably increase same store sales in 2014?

Can the company shrink its way to profitable growth?

Much of Magnacca’s turnaround strategy focuses on being relevant.  The strategy is on point but can the executive team execute?  As pointed out in its Super Bowl ads, Radio Shack lost its way many years ago.  Consumers and their tastes evolved while Radio Shack stayed the same.  With its new branding campaign (one of Magnacca’s 5-point strategic turnaround initiatives), the company is searching for messaging that is relevant to its target customer.  Another of Magnacca’s strategic initiatives is revamping product assortment.  This effort to reach customers with relevant products is a fine strategy once customers start visiting stores again.  The product initiative can only drive profitable growth if the rebranding strategy is successful at helping store traffic rebound.  And, there is a risk with this new merchandising strategy:  The company intends to promote high margin private label brands.  Clearly, these products must be relevant to new and returning customers.

The strategies appear sound but can the company execute?  Magnacca joined Radio Shack in February 2013.  Calendar year results for 2013 were pitiful.  Critical 4th quarter results missed the mark.  Same store sales experienced an even larger drop in 2013 than 2012.  The strategy isn’t a concern but the track record of operational excellence has yet to materialize.  Magnacca has hired a few new execs to drive change.  We shall soon see if he has the right team to restore life to this once iconic brand.