RadioShack's Day, Former Banker, Flexes Retail Muscle (Update1)
By Mark Clothier
March 9 (Bloomberg) -- For a guy who began his career crunching numbers in Britain, RadioShack Corp. Chief Executive Officer Julian Day is showing an unusual aptitude for retailing.
Just a few months into the job last October, Day, 54, quickly absorbed a presentation by New York turnaround experts AlixPartners LLC which showed that while customers liked the service at the electronics chain, products and prices missed the mark.
``He had a tremendous grasp of the business for someone who had been there such a short period of time,'' said Fred Crawford, an AlixPartners consultant. ``I remember sitting back and saying this guy synthesizes information very, very quickly.''
Since becoming CEO of the Fort Worth, Texas-based retailer six months ago, Day, an Oxford-educated former McKinsey & Co. consultant who once worked at Chase Manhattan Bank, has closed 505 stores, liquidated slow-moving items such as karaoke keyboards and trimmed the Texas-retailer's workforce by 7,000. Fourth-quarter profit rose 65 percent, the most in four years.
Shares of RadioShack climbed 12 cents to $25.99 at 10:07 a.m. in New York Stock Exchange composite trading. Before today, they gained 54 percent this year, 88 percent since Day took over July 7.
While he's shown he can cut costs, he has yet to show he can get more shoppers into stores. ``He's grabbed the easy things, the cost-cutting,'' said Charles Duddles, a former chief financial officer of Jack in the Box Inc. who served with Day as a director of Petco Animal Supplies Inc. ``The next step is, how do you grow sales?''
Six weeks into the job last August, during a national meeting of 2,000 franchisees at the MGM Grand Hotel in Las Vegas, Day sat with a half-dozen store owners for what they thought would be a quick dinner. It lasted three hours.
`Bugging Us'
``We closed the room we were there so long,'' said Mark Kazmer, who owns a RadioShack in Spearfish, South Dakota. ``We ran out of things to say about what was bugging us.''
One issue Day solved: charges for shipping from outside a franchisee's territory. Store owners who couldn't get goods from their nearest RadioShack warehouse were being charged freight costs to send from those farther afield. Instead, they stocked their shelves with electronics from other makers. ``That problem is being fixed,'' Kazmer said.
Day took over from interim chief Claire Babrowski, who had arrived in July 2005 from McDonald's Corp. and had already planned store closings and clear-outs of slow moving merchandise. She led RadioShack after CEO David Edmondson was ousted for lying on his resume.
Troubled Retailers
Day already had experience with troubled retailers, having helped lead Kmart out of bankruptcy in 2003. He spent his first seven months in Fort Worth on internal issues, canceling analyst conference calls and turning down requests for media interviews, including one for this story.
Prior to Kmart, Day was an executive at Sears and chief financial officer of grocer Safeway Inc., based in Pleasanton, California. He left Safeway in 1998 because he wanted to become CEO of a publicly traded company, the company said at the time.
Before that, he was a management consultant to buyout firm Kohlberg, Kravis and Roberts & Co. He was a London-based consultant for McKinsey and European development manager at Chase.
Executives who have toured stores with Day say he's a savvy merchandiser. ``I found his insights to be very astute,'' said Peter Maslen, chairman of private investment firm HansonMaslen Group LLC in Kirkland, Washington, and a fellow director with Day at Petco.
Less Cluttered
``We spent quite a lot of time wandering around the Petco stores and looking at other people's brands,'' said Maslen. ``I'm a bit of a store wanderer as well. It's hard to go past a shop and not critique, and Julian is certainly in that vein.''
Under Day, RadioShack stores have become less cluttered. Older, slower-selling products like handheld language translators were cleared to make way for flat-panel televisions and iPods in time for last year's holiday shopping season.
``The stores feel easier to shop,'' said AlixPartners' Crawford. ``RadioShack has always had a little bit of a claustrophobic feeling. From recent trips I've made, the stores have clearly been edited to point where you're able to see what you're looking for. The merchandise is beginning to pop out at you a little more.''
`Tackling'
Day also is making RadioShack more flexible by allowing stores to set prices based on local competition. That's something Best Buy Co. in Richfield, Minnesota, and Circuit City Stores Inc., based in Richmond, Virginia, are already doing, said Tim Allen, an analyst with Jefferies & Co. in New York.
``In some ways, he's doing the blocking and tackling that should have been done all along,'' Allen said.
Day's biggest challenge is boosting revenue. Sales at stores open at least 13 months fell 7.7 percent in the fourth quarter, the most in at least five years. The retreat lessened as the quarter progressed, the company said.
``He's got to come up with a marketing plan and a positioning for RadioShack,'' said Duddles, the Petco director. ``That's not going to be easy.''
`Footprint'
Revenue at RadioShack increased at an average annual rate of 1.3 percent in the last four years. Sales at Best Buy, the largest U.S. electronics retailer, climbed an average of 15 percent a year during the same period, while they gained an average of 5.3 percent at Circuit City, the second-biggest U.S. electronics retailer.
``I think that there is a challenge to figure out what the best items are to sell via RadioShack's footprint,'' said John Goetz, who helps manage about $27.3 billion for Pzena Investment Management LLC in New York, including about 3.8 million shares of RadioShack.
Analysts estimate sales will fall 3 percent this year, the second straight annual decline after three years of gains.
``Day stepped into a good situation,'' said Allen at Jefferies & Co. ``But most of the improvements he's made have come from cost savings. He won't have that luxury after this initial wave.''
To contact the reporter on this story: Mark Clothier in Atlanta at mclothier@bloomberg.net
Last Updated: March 9, 2007 10:10 EST |
