The Complications That Led To Radio Shack Declaring Bankruptcy For A Second Time In Two Year
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I'm not going to lie to you: when I first read about Radio Shack filing bankruptcy again, my first thought was "They're still in business?" Indirectly, that is one of the many reasons that Radio Shack has had to file bankruptcy yet again.
The latest news has Radio Shack closing nearly 190 more stores nationwide. It's very sad when a business takes a beating like this, but don't expect too many people to swoop in to rescue the Shack or mourn its loss.
People walk past the Radio Shack in downtown Washington, DC, one of the 365 locations that Radio Shack intends to close by early April. (PAUL J. RICHARDS/AFP/Getty Images)
Radio Shack's History
Radio Shack started out as a specialty electronics store. Its first store was opened in the 1920s. It sold ham radios. As the decades went on, Radio Shack established itself as the electronics store to go to. They sold everything from eight-track players to portable CD players. As electronics advanced, Radio shack stayed ahead by providing the latest tech (and batteries) to a country that was slowly becoming dependent on it.
But after the year 2000, things began to go horribly wrong for them.
Aside from a string of disastrous business decisions that made it vulnerable to its competitors (including partnering with Sprint), places like Best Buy and Walmart began to push the store out of its own niche. Then Amazon popped up, destroying any chance of it ever recovering.
It is important to note that the first time Radio Shack filed bankruptcy, they were bought by General Wireless Operations. It is GWO that is filing the bankruptcy this time, which is why Radio Shack can file bankruptcy twice in two years; they're operating under a different company name so the seven to 10-year restriction doesn't apply to them.
Failing To Keep Up With The Times
To its credit, Radio Shack did try to keep up with its competitors. It moved into the satellite, cable and cell phone space rather quickly. It was also one of the first stores to establish the "store within a store" technique. But that, alone, wasn't going to save the failing brand.
The fact is, Radio Shacks competitors were far, far ahead of them in terms of products and pricing.
Radio Shack got used to selling its electronics at a rate that was profitable for them - and expensive for others. Once Best Buy, Walmart, and Amazon started dominating, Radio Shack began to lose billions in sales. That's because its focus was far too narrow.
Best Buy only sells electronics, but those electronics include appliances, musical instruments, and gaming consoles. This helps them to appeal to a broader audience of people. Regular sales prices and items you can't get anywhere else help them stay afloat.
The same can be said of Walmart, with the caveat that they specialize in everything from baby diapers to fish bait. Walmart sells quite literally everything you can think of, which is exactly why its biggest competitor is Amazon.
It's also why it can afford to slash its prices like crazy. It can make up for its sales in other areas. So even if its electronics are cheap, it can make up the money lost through its auto, eyeglass or hairstylist departments.
The Walmart brand also encompasses clothes, food, shoes and accessories under many different brand names. In the end, a small store like Radio Shack that is narrowly focused on specialty electronics - like drones and cables - can't successfully compete with stores that offer almost everything you can think of.
We're not asking Radio Shack to go into something like poultry equipment or healthcare software. But if they would simply broaden their horizon and dip their toes into something new, they may find the strength to carry on.
Pricing And Location
In order to stay afloat, Radio Shack decided to offer its merchandise for at least double what its competitors were offering. A perfect example is a Star Wars toy going for $99 on sale on Radio Shack's website. That same toy is available at Walmart for $79 and on Amazon for a similar price (as of this writing). Why buy that toy from Radio Shack when you can get it from a brand that you know and trust?
In a world full of coupon websites like Groupon and Dealslands, the majority of individuals don't have to shop at a specialty store. They can go to neighborhood stores like Walmart or Target, or buy the things they need online and have it shipped to their houses for free.
This not only saves them time and money, it saves gas. If I only have to go to one place to get everything I need, why wouldn't I shop there? It doesn't make sense for me to drive to two or three different places just to go shopping unless I'm looking for something very specific. But if I'm a consumer who shops at Target, Walmart, or Amazon, it's highly unlikely I'm going to go to Radio Shack for anything.
I can pay my Sprint bill online too.
While this isn't exactly the end for Radio Shack, it's quickly losing ground to its competitors. If it doesn't widen its focus and adjust its pricing, it won't even be an afterthought in history.
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