RadioShack: The Bidding Has Begun
It appears as though the rumors of RadioShack being up for
sale may be true as the New York Post reports that the first round of
bidding has been completed for the consumer electronics chain.
The usual private
equity suspects, Blackstone Group, Bain Capital and Kohlberg Kravis Roberts & Co.
and TPG Capital, appear to be looking at making bids for the chain as well
as one "strategic" party thought to possibly
be Best Buy.
A RetailWire poll in March found that 61 percent of respondents
thought a merger between Best Buy and RadioShack would be a somewhat or very
good idea.
There appears to be quite a bit of interest in the chain, which has
focused more recently on mobile technology including opening specialty kiosks
in Target locations.
"RadioShack is an appealing opportunity for a (private-equity) firm because
it has a ton of cash, and a mobile business that is growing quickly," an
unidentified banking executive told the Post.
Discussion Questions: What’s the best case scenario for RadioShack in terms
of new ownership? If you were acquiring RadioShack, what would you do with the
business?
The opportunity for RadioShack is tremendous. Why no one has yet been able to make it work is a mystery. As our world becomes full of more gadgets that need to be interfaced with one another, the demand for services will only increase. Who could better fill these needs than a local retailer sporting a recognized banner and carrying an inventory of integration products ranging from cables to routers and DVRs? Combine this with ongoing remote support for software and hardware upgrades and you have a whole new business model for RadioShack that is based on providing customer services instead of merely sales.
RadioShack becomes the alternative to Best Buy’s Geek Squad and the independent service the consumer needs to integrate their various purchases. In fact, that might be another role for RadioShack as they can offer consulting services for consumers wanting to upgrade their technology by identifying compatibility considerations.
Best Buy! Imagine the opportunity to get into smaller spaces in neighborhoods all over the country in an instant, or, on the other hand, to get into bigger boxes out on pads quickly–what an expansion op for both teams! The possibilities for product penetration, delivery (!), Geek Squad stations, cross promotions and flat out top of mind drive-bys is awesome.
The only thing of concern is culture. When companies merge or buy or sell, culture is always the devil in the details. But if that’s a fit, it’s a match made in retail heaven.
RadioShack’s number of locations might have appeal to put the Best Buy nameplate in more locations, but the consumer mix is different for these two retailers, and the strategies, execution, and cultures come from different slices of the retail world.
If Best Buy chose this strategy, they will have some time-consuming work to do. The private equity gang will likely create chaos and confusion if they are buyers.
RadioShack has to make it on their own. That will be a matter of shrinking in size, and getting tightly focused on what they do best–then build the consumer base (more females, younger audience, more affluent, etc.). Tough execution, to be certain, but necessary.
I see this question from the other side of the table–what’s the best outcome for the shopper?
Big companies can offer great prices once they’ve hit economies of scale. But beyond this, once companies become monopolies (or near-monopolies) they can become encumbered with bureaucracy. Competition is good; it gives variety to shoppers in terms of price, product, service, and convenience.
I wrote previously that Best Buy would be a good fit for the RadioShack model. Best Buy with their big box culture. RadioShack with the smaller box culture, but with many locations in second and third level areas. A great new sales opportunity for Best Buy.
My concern is the internal culture of the two companies. RadioShack located in Ft. Worth with a strong southwest culture. Best Buy from the north in Minnesota. I am not comfortable that it is a good fit. However, those things can be worked through.
RadioShack has made bold moves through successful new marketing and advertising campaigns. This has caught the attention of many potential suitors.
I think they have to decide who they are and who they want to be. With a Best Buy merger it is a no brainer. They become Best Buy. If they are taken over by an investment group; they can continue to operate autonomously; but with strong financial directions.
Whatever the case, it is inevitable that RadioShack is going to be sold. If by an investment group, they will be sold again and potentially to a Best Buy type company.
A real strategic partnership with a merchandising philosophy company would be best. It would be great if Best Buy bought them and created a real, dynamic, ‘Electronics C-Store’ concept with them. Unfortunately, Best Buy learned a hard lesson about mall CE retailing when they purchased Musicland and probably wouldn’t do that again. But we can dream!
I would be interested to hear what impact Julian Day has on this potential transaction. Ex Kmart and Safeway….
More than 50% (and some studies say 70%+) of all mergers and acquisitions are failures. There are many reasons for the failures. Most people mostly blame them on culture. But, by far the biggest reason is lack of strategic thought before the acquisition is executed. Generally, corporate executives think they want to do it, then they back into a strategy.
If Best Buy has done an analysis of its own business and determined their are certain weakness that they can not fill organically and there is a potential target out there that fills those weakness, they should go for it. If it is RadioShack, perfect.
However, the likelihood for investment success for The Shack is with the private equity firms. The Shack is uniquely positioned for the continuing technology boom. Current technology adaption is moving faster than anyone ever conceived of. Currently, the entire owned population of cell phones is turning over every 21 months.
The Shack can be on the leading edge of consumer confluence of technology like no other retailer can. That is the bet.
I think Best Buy might want RS in order to expand its position in the cellphone market–they already own 50% of Europe’s biggest cell retailer, Carphone Warehouse.
RadioShack’s mall locations would help expand their cell presence, since many consumers shop the mall–all those T-Mobile, Verizon, etc, kiosks–when considering new phones/contracts.
I can’t see Best Buy being a good alternative for RadioShack or even a good alternative for themselves. I don’t understand the appeal of Best Buy for any reason. My experiences there have been dismal to say the least, both from a customer and an observational point of view.
It would seem to me that RadioShack’s best alternative would be to take their business online in a big way. While the neighborhood location has some appeal, I think most have forgotten they exist, thus their problem of existance in the first place.
If they could learn the secrets of speed of delivery as some online retailers such as Zappos, they might be as effective as they are in the neighborhood. One of my recent experiences with them I became acutely aware of their problems of out-of-stocks. Even thought they could send me to another location, it’s an issue due to their volume levels. Combining stock to distribution points as would be required in online distribution this may help to solve that issue through closer control.
After all, they are a shop for real geeks and the alternative to the local hardware for many items. Geeks are online. RadioShack should be there in a big way, too.
RadioShack has been in business since 1977 (33 years) and were a part of the Tandy Corporation. At that time, RadioShack (“The Shack”–NOW their new branding strategy…) only carried there OWN products under their BRAND name. The average consumer’s perception was low, looking for national name-brand products only to find Realist, Tandy and other RadioShack brands that consumers could not associate with as opposed to brand names like Panasonic, Sony, RCA, HP, Gateway, Epson, Lexmark,etc, to name a few. We’ve seen RadioShack change its image, product mix, and store design, and transform themselves over the years into a player in the consumer electronics market. Back in the 80’s or even the early 90s, you would never find HP, Toshiba, and other brand Personal Computers along with brands such as Sony, RCA, Apple, etc. In my opinion and in my observation–having followed RadioShack carefully throughout the years–RadioShack has changed and taken much more of an aggressive position in a “Going forward” direction and are still a major player in the CE Market.
Private equity groups or Best Buy if considering acquisition should not be pursued. RadioShack should continue on their own, improving on product mix, reviewing profitability and closing under performing stores. RadioShack must strive to continue to better position themselves as a player and commit to ongoing support of store Re-design, and promoting “THE SHACK” branding concept. Their focus must also include better training of sales associates and to work harder at becoming a much stronger competitive force within this highly aggressive consumer electronics market.
RadioShack’s Julian Day and executive team should be a match for Blackstone Group. In his blockbuster book “Good to Great,” Jim Collins outlines the Flywheel and the Doom loop. RadioShack could be in a position to get lending to put their capital to work and product to finally compete with Best Buy on cell phones and all electronic devices. RadioShack should have owned that market a decade ago, however, the time is now for them to get in the game and take back lost market share.
I believe their smaller box locations can generate tremendous growth if they have the right products consistently, hire more aggressive sales people and leverage “The Shack” theme.
Picking up RadioShack will bring in a lot of overhead for Best Buy in terms of rationalizing its brand portfolio, international operations, different store formats, etc. However, the opportunities seem to far outweigh everything else. The list of opportunities might include:
– Enhanced private label presence across a variety of profitable categories;
– Leveraging the RadioShack locations for spreading Geek Squad (your technicians at the neighborhood mall);
– A ready location platform for Best Buy to turbocharge their recycling business. Best Buy is doing a lot of interesting things like selling electric motorcycles, exploring selling electric cars, leasing electronics and DealTree.com.
RadioShack, for a variety of reasons, could well play out an important role in the long-term Best Buy roadmap.
Does anyone watch the NBC TV series, “Chuck?” Chuck is the leader of the Nerd Herd service department inside a Big Buy appliance store (sound familiar?). Chuck is also a CIA spy with a beautiful CIA spy girlfriend, and therein lies the potential marketing key for a BB/RS marriage: Integrate Radio Shack with BB’s Geek Squad and promise all their employees a beautiful spy girlfriend. Then, increase foot traffic at RS (perhaps renamed Geek Squad) locations by staffing a beautiful female model in every store. Am I on to something here? Can I get royalties?
“RadioShack is an appealing opportunity for a (private-equity) firm because it has a ton of cash.”
Suffice it to say, this will rule out option #1, and #2 seems likely to end up in RS becoming Best Buy Express (or some equivalent); this of course leaves us with #3…always the sentimental favorite.
But ultimately, I think RS’ big problem is that it is THE player in a niche market (the electronic hobbyist and do-it-yourselfer) that is disappearing, which leaves the option of reinventing itself and becoming a player in a related field (cell phones has been suggested); a tall order to accomplish…I wish them well and thank them for the memories if it doesn’t work out.
Best Buy is a good fit but would raise anti-monopoly restrictions for sure….
Can I let a cat among the pigeons and recommend that Amazon be a suitor? They could use the stores as pick up points and to allow trials, like Argos stores in the UK.
I met with RadioShack years ago in Fort Worth and they said that they did so well because they had no competition. I don’t think were looking ahead enough. They have a number of great locations. What they need is a new vision and rebranding.