Radioshack Company Strategic Management - Essay Example

RADIOSHAcK COMPANY STRATEGIC MANAGEMENT By Key words: Strategy, RadioShack Executive Summary RadioShack Corporation was founded in 1967 and by the beginning of 2014, the company had around 4,300 operational retail stores in the U.S, Virgin Islands and Puerto Rico. The company is primarily involved in the sale of consumer electronic products on a retail front and it’s worth noting that the company merchandise is divided into two classes that include retail and mobility. The mobility class entails e-readers, wireless handsets that are prepaid coupled with tablet devices. On the other hand, the retail class comprises of consumer electronics inventory and other associated accessories. In the last few years, the company has been faced with reduction in sales revenue due to the global phenomena of online retailing and financial reports from the company indicate that it has failed to be profitable for the past three years due to the intense competition from companies like eBay and Amazon. In fact, the company recorded losses of $140 million in 2012 and recorded their heaviest loss since its incorporation in 2013 of about $400 million. Commentators have pegged the steady decline of RadioShack on the declining top line which has been bombarded by very steep costs. The company also had a decline in cash reserves from $535.7 million in 2012 to $179.8 million in 2013. Statement of the problem The company has been in steady decline over the last three years due to a number of factors like intense competition from online marketing companies like Amazon and low profit margins. Other key problems that have been identified are poor management, lack of product differentiation and a clear lack of focus and vision by the management that is future oriented. Recommendations The recommendations to deal with the company’s decline include:- Setting clear goals and vision for the company. Introducing employee education programs Instituting new management that is future oriented Shutting down underperforming stores Increasing web sales and its online customer service tools Defining the brand ;RadioShack; in a clear and concise manner Conclusion Preliminary findings regarding efforts to revive the company are inconclusive at the moment, with some analysts pointing out that the measures taken by the company may not be enough as evidenced by the fact that RadioShack’s shares traded at -$1.00 earlier this year for the first time in its history while others are more optimistic. REPORT Strategic analysis RadioShack’s mission statement is to focus on the major part of its retail business which is its customers and electronic products. The initial RadioShack store was opened Milton and Theodore Deutshmann in Boston in order to provide parts and products for the operators of the ham radio. The mission statement places emphasis on not only its retail business but also accepting that its employee delivery is a crucial component of achieving its goals (Treverton 2012). RadioShack’s mission statement is achieved via its comfortable and convenient neighborhood stores and sales associates of the company that are very knowledgeable in order to assist customers to maximize their satisfaction from the technological products sold at their stores. RadioShack retails mobile innovative technological products coupled with services. Additional related products provide by the company are power supply needs and personal home technology. The company also offers power products and batteries, laptop computers, music players, home entertainment accessories, GPS devices, televisions and other varieties of electronic appliance accessories. RadioShack sells its products via operating stores by using the brand name of the company and current estimates from 3rd December 2014 place the number of operational stores in the U.S.A and Mexico at close to 4,300 and an estimated 1,200 dealer franchise stores that are established in over 25 countries globally. The total number of employees hired by the corporation are approximated at 27,500. The stores are located in shopping centers, individual storefronts and strip centers and each location bears a wide variety of both private and brand consumer electronic products. Besides its retail platform, the company uses other support operations and dealer channels that include RadioShack de Mexico, Dealer Outlets, RadioShack Global Sourcing, Distribution Centers and RadioShack Technology Services. RadioShack is licensed to make use of any service marks or trademarks that are in connection with the company whether abroad or in the U.S. For its manufactured products that are private brand, they are sold under Gigaware, AUVIO, RadioShack and Enercell trademark. In addition to owning the above trademarks, the company possesses patent applications and patents pertaining to consumer electronic products. It is worth noting that the company competes with a number of firms in the sale of services and products that are of a retail model which include retailers from independent, regional and national consumer electronics coupled with specialty and department retail stores in specified categories of consumer electronic products (Warne 2010). Other additional competitors include wireless mobile service providers, big box retailers, internet retailers, and warehouse and discount retailers. RadioShack must adhere to the local, state and federal laws that are not limited and include ERISA, International Revenue Service, Department of Labor, Health Administration and Occupational Safety, Environmental Protection Agency, Fair Play Standards Act, SEC and the Federal Trade Commission. Earlier this year, the company announced that it was going to close almost 20% of its locations which constitutes almost 1,100 stores meaning the company would be left with 900 operational franchise stores and the rest would be retail stores. Reports from RadioShack’s financial reports indicate that the company had reported store sales that had fallen by 19%in comparison to the previous year’s quarter which was inclusive of the holiday shopping period. The decline in overall sales was attributed to the decline in mobile phone sales which had experienced a reduction by close to three times. RadioShack is described as having one of the biggest footprints in comparison to any other retail store in the U.S with estimates putting the figure of company fillings at more than 90% of the population. Simply, there is a 90% chance that if you are a citizen of the U.S.A, you live or work in a location that is close to a RadioShack retail store outlet. This is in comparison to other major retail chains like Walmart that has 3,700 stores and Best Buy which has 1,400 stores in the U.S. The company is classified as a brick and mortar retailer and has faced stiff competition in recent years from online retail companies like Amazon (Warner 2010). Many shoppers participate in what is known as show rooming where they visit brick and d mortar retail stores like RadioShack to look for products but then purchase the products via online means which offers lower prices than the store. Other stores like BestBuy have embarked on a similar strategy of cost cutting by closing down its retail stores just like what RadioShack is pursuing. The company’s trading position on the New York Stock Exchange as of 9th December 2014 together with values for its competitors. The company’s trading position Previous close=0.56 Today’s open=0.56 Day’s range=0.56-0.58 Market cap=$59.4 million Volume=336,823 Average volume for the last three months=3,740,705 Growth and Valuation 2013 growth earnings=-185.61% 2014 growth earnings=N/A Growth earnings for the next 5 years=N/A Revenue growth for last year=-19.34% Price/Sales=0.08 Price/Book=0.29 The company’s competitors change and %change as of 09/12/2014 BestBuy Co Inc. =-0.50, -1.37% Conn’s Inc. =-13.89,-39.58% Dixons Carphone PLC=-7.70,-1.37% HSN Inc. =-0.80,-1.12% According to the last financial reporting date on October 21, 2014, the Earnings per share for the last quarter was (-$1.00), the annual revenue for last year was $ 3.4 billion, the loss for 2013 was (-$ 400.2 million) and the net profit margin was (-11.41%). Strategic development One of RadioShack’s mission is geared towards the demystification of technology in each neighborhood in the US through its brand position-You’ve Got Questions, We’ve Got Answers. The company’s vision is for it to become the most revered firm in the US as in accordance with its business model which is abbreviated as A-P-O. The A represents the firm’s anchor products which include a wide variety of wireless communications, batteries and accessories. Its aim is to continue to increase resources and merchandising in those type of businesses to increase profitability levels. P represents the firm’s participatory products which include product lines that the company’s competitors decide not to participate in. Such products include antennas and intercoms. O is representative of the company’s opportunistic products that are essentially the brand new technologies, trending products that are not yet available in the market and other seasonal items. It has been suggested that the A-P-O model lays the basis for the company’s future plans to expend and increase their operations. In that model, RadioShack is comprised of three strategic business units and every SBU places focus on a set key products that are contained in the company’s A-P-O model. The SBUs are as follows:- a) Connecting Things It represents batteries, technical products, accessories, seasonal products, toys, batteries and portable audio b) Connecting People It includes radio communications and accessories, wireless communications and accessories coupled with wired communications and their accessories. c) Connecting Places Simply alludes to computers and home entertainment The three SBUs have aided the business to be more tailored to meet the needs of customers and their individual preferences which will improve the probability of the company expanding its operations in future. Strengths RadioShack has sold electronic goods for over thirty years and therefore has developed an image that has been carefully processed to serve RadioShack’s agenda of meeting the consumer need for dependable and new technology. In the event that consumers want to purchase new batteries or state of the art accessories, they can always depend on finding their preferred high quality and dependable product at RadioShack. The company’s position in the electronics market is strengthened by its advertising and marketing since it has entered into contractual agreements with a number of celebrities who market their products on their behalf in television commercials. Additionally, RadioShack sponsors many events such as the Rock and Roll Hall of Fame and Museum which serves as part of their marketing campaign to expose the brand of RadioShack and their products. RadioShack trains its new employees for close to three weeks before they are assigned to the sales floor and during the training period, the employees are mandated to watch videos and read about new technological products in the market and how they work. Additionally, quizzes are administered and all employees are also required to constantly upgrade their knowledge regarding current events regarding technological products and their functions. Weaknesses RadioShack stores are small in comparison to their rivals like Circuit City which means that they have a lower capacity for inventory and the time spent in their stores is equally lesser than their competitors. This means they record lower profits in comparison. RadioShack also performs poorly in wireless sales which is catastrophic regarding how in current times, wireless technology is found everywhere and is easily accessible in many electronic stores. Following the staggering $400 million loss experienced by RadioShack Corp in 2013, its management embarked on a strategic plan that would see a reverse in its initial strategy in order to be profitable again by keeping in mind the adverse financial conditions that are experienced today in the highly volatile market. The strategy adopted is based on four steps-improving its operational efficiency, creating financial flexibility, revamping product assortment and improving/modernizing its stores’ layout and its website design and content. The CEO of RadioShack, Joe Magnacca recently gave detailed strategic plans on how the company was going to improve its close to 1100 stores that were not performing well. The company has entered into an agreement with its creditors that prohibits it from shutting down 200 stores in a single year or the equivalent of 600 stores which represents the entirety of the loans’ repayment period. This restrictive covenant was entered for the purpose of ensuring that creditors can secure their loans in the event the company becomes insolvent. The other strategic plan step involved creating flexibility in relation to the company’s finances (Papanastassiou 2009). At the end of 2013, the company entered into a $585 million credit agreement for a period of 5 years. The credit agreement is secured by RadioShack’s assets and the company was able to repay debt worth $175 million and an additional $286.9 million that was in convertible notes. The new strategies have not had any significant changes in the profitability of the company as of now, but have maintained the liquidity levels of the company at a constant level of $554.3 million. The company is bound to experience advantageous results in the form of increased sales and profit levels if it continues to adopt a more flexible financial position coupled with other additional measures. The company’s strategy to revamp the assortment of its products has begun as experienced by the appointment of a new chief merchandising and mobility officer, Paul Rutenis who are going to work together with Janet Fox in a bid to overhaul RadioShack’s private brand and outsource the products. This strategic move was embarked on due to the company’s record of low gross profit in their most recent quarter which was attributed to losses pertaining to a shift in the assortment of merchandise. The company off inventory worth $10.1 million in 2013 and the company is therefore beginning to notice that in recent years it has not been able to connect with their customer base and needs and changes are in place to combat the disconnect. This shift in strategic management is bound to result in reduced inventory write offs in the next few years and higher inventory turnover values. The company has also entered into a partnership with Quirky in a bid to gain a competitive advantage over its rival firms in the retail industry. Quirky is a social network platform where consumers can post their ideas regarding products and the ideas that are widely accepted are developed. By consumers can post their ideas regarding products and the ideas that are widely accepted are developed. By gaining exclusive rights to develop these products, RadioShack is bond to receive increased turnover and traffic to their retail stores. Additional ways to attract customers to their 100 stores can be through introducing 3D printers and having a demonstration unit. The new technology is going to entice a significant number of potential buyers. It has been noted that besides RadioShack’s sale of outdated consumer electronics products, the layout of their retail stores also needs to be updated and modernized. The management of the company has realized that it needs to adopt designs that are aesthetically pleasing to the eye and have aimed to adopt an outlook that is similar to the ones adopted by the Apple Stores. RadioShack’s strategic plan is remodel its 100 retail stores in the course of 2014 and also relocate about 30 stores in other locations that are going to attract more customer traffic flow. By combining the introduction of new innovative products at their also new stores’ outlook, RadioShack is bound to attract more customers and record profits for the first time since 2011. RadioShack’s online presence is to be updated as well to make it more user friendly, neat and easy to use. The original website received complaints of it being difficult to use and cluttered and the company embarked on a plan to revamp its website to adopt a more simplistic and user friendly approach which has adopted heavily from the Apple website (Goldsby 2005). The new RadioShack website has received overwhelming positive reviews with emphasis place on its list containing novel (Do-It-Yourself) projects. This new strategy also enables customers to purchase products from a wide variety of options which has many commentators commenting about its lucrative potential. Recently other strategic measures have been adopted such as its recent announcement that the Board of Directors of RadioShack were going to receive advisory services from The MAEVA Group in order to improve the financial position of the company in the coming quarters. It is worth noting that the company has developed a new 4G LTE mobile network which is a Defense Mobile Service that is exclusively for military service personnel, veterans and their families. There are a variety of branches under the Defense Mobile brand such as NAVYmobile, ARMY mobile. AIRFORCEmobile, COASTGUARDmobile and MARINEmobile. RadioShack is the exclusive retailer of this service on a national level and innovative moves like these are bound to reap heavy rewards for the company. Current estimates suggest that the mobile service covers almost 52 million personnel of the U.S military community in more than 2500 locations and an option to ship products directly in any part of the world. The management of the company plans to increase the outreach of its service in 2015 on a nationwide scale which will enable military service personnel and veterans to take advantage of the military’s 10% discount program when they buy the phones and Defense Mobile Services. These strategy of adopting innovation on such a grand scale, is a step in the right direction for the firm and the company is going to be profitable in the next coming quarters. Earlier this year, RadioShack announced that it was going to embark on a set of branding strategies that involves a campaign and a new slogan for the marketing strategy in order to improve its fortunes. The slogan –It can be done when we do it together- was developed for the purpose of encouraging of attracting customers to the boundless possibilities that are available to them if they adopt technology. The integrated marketing campaign, which was a collaborative effort between the company and GSD & M which is its new marketing partner began in February and included marketing on many platforms :in-store, social network, print, radio, digital and through the TV. The campaign, according to analysts is for the purpose for branding RadioShack and its associates as the best platform where innovative consumers can be aided to develop cutting edge products and in so doing, RadioShack will be able to reposition itself that changes internal practices of the organization but also changes the pricing and the products it sells to customers. Other measures in the pipeline for the next 5 years include, adopting more efficient training and hiring measures, product development strategies, merchandising techniques and the outlook of its retail stores that will display the new measures implemented by the company. The new CEO has also embarked on adopting new strategic leadership teams in the company in order to forge a more global mind set in the managerial staff that will trickle down to the employees gradually. Additional strategic measures to be adopted include the adoption of a new company logo, concept stores and entering into more profitable partnerships with manufacturing firms in the industry to boost sales and expand the customer base in the process (Verweire 2014). Strategic Implementation RadioShack is plagued by the following problems; online competition from companies like Amazon that have resulted to a declining sales yield, lack of differentiated products that are standardized, high costs associated with existing the industry, intense degree of concentration of homogenous products, very high fixed costs of producing the electronic products especially fete that 2010 global financial crisis, very low profit margins as a result of intense competition from both direct and indirect sources and the presence of low switching costs (Pearce 2011). Due to the availability of a number of electronic products in the market with many suppliers, a high elasticity of demand of the product(s) and low purchase volume caused by the reduced purchasing power of many consumers, the only way RadioShack can be able to differentiate itself from the other competitors is through differentiating its products through branding or packaging since it cannot afford to lower its prices. It is estimated that the growth of the industry is very slow at a rate of only 1.8% and by the year 2018, the total value of the industry will be $78 billion coupled with an increased consumer sentiment index by close to 3%.Estimates regarding the future suggest that the consumers have become more and more inclined and commitment towards protecting the environment and will advocate for recycling of products. In order to be ahead of the other firms me the industry, I suggest that RadioShack invest in the production of recyclable parts for their electronic parts and they will be able to obtain the competitive advantage over their other rivals in the market. The company also recorded losses for the past three years due to the presence of inadequate management that does not have a clears set vision for the future of the company. The management of the company should promote programs that are geared towards the education of their employees and define clearly brands of electronic products. It is essential that the management adopts a strategic policy that places emphasis on the development of ideas and innovation first before considering the costs involved in developing new products in the market. Innovation requires highly qualified personnel and therefore, the hiring policy of the company should place significant stress on employing talented and hardworking employees who are well remunerated to keep them motivated (Pearce 1988). Additionally, RadioShack should continue developing its online presence by continuous revamping of its website to keep it modern and up to date with the current changes in the globe and shut down those departments or stores that are underperforming in order to give more time to specialty electronics. Wedbush Securities indicate that the price of a pack of 3 batteries costs $12.99 while a pack of the same costs $5.45.The price of the product is a major factor that has led to the decline of the once leading player in the industry. The company could probably adopt a varied least cost strategy that places emphasis on reducing benefits to its executives such as travel allowances and overall office expenses to a minimum as adopted by multinationals like Walmart but still maintain the competitive basic salaries for their employees and flexible working hours to keep employees motivated. The company may also adopt innovative devices that reduces the reliance of the retail stores on the manufacturers in order to costs associated with the supply chain coupled with the mandated no fee for transportation of electronic products by the company’s trucks to the local retail stores in the U.S in order to reduce the prices of the products. References Goldsby, Thomas J., and Robert Martichenko., 2005. Lean Six Sigma Logistics Strategic Development to Operational Success. Boca Raton, Fl. J. Ross Pub. Papanastassiou, Marina, and Robert D. Pearce., 2009. The Strategic Development of Multinationals: Subsidiaries and Innovation. Houndmills, Basingstoke, Hampshire: Palgrave Macmillan. Pearce, John A., 2011. "The Relationship of Internal versus External Orientations to Financial Measures of Strategic Performance." Strategic Management Journal: 297-306. Pearce, John A., and Richard B. Robinson., 1988. Strategic Management: Strategy Formulation and Implementation. 3rd ed. Homewood, Ill.: Irwin. Treverton, Gregory F., and Jeremy J. Ghez., 2012. Making Strategic Analysis Matter. Santa Monica, CA: RAND. Verweire, Kurt., 2014. Integrated Performance Management a Guide to Strategic Implementation. London: SAGE. Warner, Alfred G., 2010. Strategic Analysis and Choice a Structured Approach. New York: Business Expert Press. Read More