RadioShack said Tuesday that it will close up to one-fifth of its nearly 5,200 U.S. stores amid widening losses in an effort to remake itself for a more competitive era of electronics retailing.
Up to 1,100 poorly performing stores are slated for closure, but the company did not identify their locations, set a deadline or say how many employees would be affected. The company must negotiate with landlords and seek approval from lenders before carrying out its plan. RadioShack has been trying to revamp its stores for the past year.
Yet some analysts say the Fort Worth-based retailer faces an uphill climb as it struggles to compete against larger big-box stores such as Best Buy.
RadioShack stock (RSH) fell 17 percent to close at $2.25 a share in regular trading Tuesday.
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In the fourth quarter, the company lost $191.4 million, or $1.90 a share. Revenue fell 20 percent from the same period in 2012 to $935 million. Sales at stores open at least a year were down 19 percent, in part because of weak sales in the mobile phone business. For the year, the company lost about $400 million, vs. $139 million in 2012.
"We were trying to do too much too quickly" to turn around the company, RadioShack CEO Joseph Magnacca told analysts on a conference call. Among other problems, he said the company cut some product lines "too deeply" and didn't have enough in-demand products in stock.
Analyst Scott Tilghman of B. Riley & Co. estimated that 5,000 to 10,000 employees will be affected by the store closings, though some of those workers likely would be moved to other locations.
Magnacca said the closures will affect lower-performing stores that were expected to lose money over the next year. He said the company is "overstored" in some markets, with multiple outlets within miles of each other.
Tilghman agreed that the company had to shut down its worst-performing stores to stay afloat. But the closings will partly negate its chief competitive advantage — convenient locations. "You lose some of that convenience store aspect they've relied on," he says. "You have to pass a RadioShack on the way to the grocer. If all of a sudden that store is closed, I'm not going to another RadioShack."
Magnacca said the company's turnaround hinges largely on a knowledgeable sales force that big-box retailers typically lack who can guide customers through a bewildering array of new electronics devices. Over the past year, the retailer has opened about two dozen "concept stores" that sport open, gleaming designs and let customers interact with products. It plans to roll out such outlets more widely.
He said RadioShack wants to parlay such assets to sell solutions in an increasingly complex environment in which mobile phones, tablets and other devices are often linked. It also wants to roll out more private-label products, such as headphones and speakers.
"We're really dialing up the experience in our stores and differentiating ourselves from big-box retailers," Magnacca said. He added that the company's strength lies "in the power of our people."
"The RadioShack turnaround will take time, and results will vary," Magnacca said. "We believe our fourth-quarter" results do not reflect the progress the company is making.
Several years ago, RadioShack drew customers who sought one-stop-shopping for mobile phones. But Tilghman says Best Buy and others increasingly offer that. And, he says, Best Buy has upped the ante, improving its customer service with "store within a store" displays for brands such as Samsung and Microsoft.
Meanwhile, he says, RadioShack's average 2,400-square-foot outlets are too small to offer the wide product variety consumers seek. Its private label products, he said, will likely struggle as shoppers place a higher premium on branded offerings.
The chain traditionally has been able to charge higher prices for more personalized service. But Tilghman says the ability of consumers to find the lowest prices on the Internet has cast doubt on such a strategy.
"They need a traffic driver," he says, citing the need for consumers to buy converter boxes or digital TVs during the transition from analog to digital broadcasting several years ago.
Analyst Michael Pachter at Wedbush Securities is not bullish on the retailer. "I think they won't be in business in a year," he says, adding the company doesn't have the money to finance the kind of turnaround it needs to win back customers. "I think that they are doing everything right — they're just doing it 10 years too late."
The company made light of its stodgy image in Super Bowl ads that featured 1980s celebrities or characters including Hulk Hogan, Mary Lou Retton and Alf.
Magnacca called the ad "exactly the kind of disruptive marketing we need to change the conversation," noting it drew top ratings from USA TODAY's Ad Meter.
Contributing: Hadley Malcolm