Michael Phelps, Lil Jon and DJ Steve Aoki walk into a pool party. No, this isn’t the setup to a cheap joke – this is RadioShack Corp’s newest ad. In a bid to shrug off its old school reputation, the electronics retailer is rolling out a flashy ad campaign featuring celebrities who cater to college-aged consumers. The change, however, might be misguided, and worse: too late.
The commercials feature the new ‘Pill’ speakers from Beats by Dr. Dre, and the emphasis on this product rather than anything else from RadioShack’s catalog speaks to strategic shifts within the company. For the third quarter of 2013, RadioShack reported that net sales fell by 10.3 percent or $92.6 million. According to its most recent 10-Q filing, this dip in revenue comes from “decreased sales for each of [its] product platforms.”
RadioShack faces sales declines in laptops, mp3 players, cameras and GPS devices. All products consumers are increasingly shopping for at Best Buy or Amazon (or buying bundled into their smartphones). Fortunately for RadioShack, wireless accessory sales (specifically portable speakers) are on the rise, and the company’s attention to this development comes across in its new ads.
Competing with big box retailers and online outlets has taken a toll on RadioShack. Every year since 2009, the retailer has faced a plummeting annual operating income – leading to an operating loss of $60.9 million last year. While companies like Amazon avoid the overhead of running thousands of stores, RadioShack reported an operating loss that widened 347 percent to $118 million in the third quarter of 2013. While the Apple Store succeeds with its focused line of products, RadioShack suffers under the weight of its catalog; comparable store sales decreased by 8.4 percent in the period ended Sept. 30.
Daniel Perez, a sales rep at a RadioShack storefront in Dallas, believes the company stands out from its competitors despite these challenges.
“It’s a trusted place,” Perez said. “We usually have what [customers] are looking for and it’s pretty quick. People like being in and out really fast.”
After failing to find help with his new iPhone, however, customer Reid Ryan is frustrated with RadioShack.
“I feel like I just wasted time,” Ryan said. “They sell you something and then they don’t have any solutions. You want them to not just sell you but have service.”
Despite criticisms levied against RadioShack, the retailer is making efforts to renovate its brand, many of which go deeper than the surface level shift in advertising. Magnacca (RadioShack’s fourth CEO in the last three years) is attempting to take the company in a new direction. Armed with an updated logo and a newfound tagline (“Let’s Play!”), Magnacca plans to open concept stores with a more minimalist feel than the clutter typically associated with RadioShack. According to his remarks in the Q2 earnings conference call, these strategies are Magnacca’s main objectives: “repositioning our brand, revamping our product assortment and reinvigorating our stores.”
Laura Norman, a research associate at the JC Penney Center for Retail Excellence, discusses the idea that reducing inventory may not be the best option for RadioShack.
“A big part of drawing people to your store is the perception that there’s a lot to choose from. Even if nobody buys that object,” Norman said. “Say you have to choose between 30 and 40 products. Even if you never planned to buy those extra ten products, that’s going to change your perspective.”
There is some hope for the ailing retailer. Last week RadioShack announced that it secured $835 million in financing from GE Capital. This figure, however, doesn’t immediately offset RadioShack’s larger woes: its gross margin rate decreased by 7.9 percent (from 38 to 30.1 percent) signaling that the costs of its inventory are growing faster than sales.
The first line of commercials in the new ad campaign focused on models dancing to singer Robin Thicke’s “Blurred Lines” while stroking ‘Pills’ speakers. Again, not a setup to a joke. In its fight to remain relevant, however, RadioShack may end up becoming the punch line.
