RadioShack's stock price soared this week on the news that earnings rose substantially during the fourth quarter, buoyed by a vigorous round of store closures and lay-offs during 2006. Chairman and CEO Julian Day also credited improved inventory management, a reduction in promotional sales and markdowns, and more efficient labor scheduling at its remaining store locations.
Despite the progress, RadioShack still has a long way to travel on its road to recovery. One of Day's key initiatives for 2007 is to shake up inventories, moving away from low-margin staples such as MP3 players, GPS and Bluetooth devices, and flash memory products. Day plans to replace the items "new and interesting" products that cater to shoppers that see RadioShack as a place to peruse leading-edge consumer electronics. Along with offering more novelty items, the company will seek to differentiate its assortment from location to location, move away from its traditional "one-size-fits-all" approach to inventory.
Offering a different mix of products based on geography and demography could help RadioShack increase it profitability, according to market analyst John Spindler of research firm Current Analysis in San Diego. However, the strategy the company has chosen will be difficult to execute, Spindler said. "It’s an uphill battle for RadioShack, given that there is so much fierce competition in today’s retail consumer electronics environment. Plus, it’s hard to find novelty items that can sell, that are also big-ticket items with significant margins."
The prototype product is RadioShack's private-label Cinego, Spindler said. Introduced at a price of $1,299 -- making it among the most expensive items in the store -- the DLP-based home theater projector was among the first commercially available models to include a built-in DVD player and Dolby 5.1 sound system. “It was more-or-less a novelty item, was priced assertively, and also tapped into market demand," Spindler said. Spindler also sees digital TVs as a potential growth area for the company, particularly in affluent areas, where well-heeled shoppers may prefer the convenience of shopping in their own neighborhood rather than driving to a "big box" mass merchandiser. The strategy could also work for rural locations, where retail competition is not as stifling.
Mobile phones and service plans are another area where RadioShack is facing stiff competition. Shifting its focus to increasingly popular prepaid wireless plans has already had a positive impact on sales, according to CEO Day.
Cost-cutting remains a top priority at RadioShack, Day told investors, stating that "uncovering and capitalizing on cost reduction opportunities across the entire organization" must become a "way of life" for the organization to meet its financial goals.