RadioShack’s iPhone Strategy Is Working Well: What A Disaster – Forbes

For years, consumer electronics retailer RadioShack has made one bad decision after another. In an effort to make the retail chain relevant, the company decided to attract customers to its 7,000 stores by selling iPhones. This strategy has worked phenomenally well and that has turned out to be a complete disaster.

On Wednesday RadioShack shocked investors by reporting a net loss of $21 million in the second quarter and announced it was suspending its dividend. The stock tumbled by 29% in morning trading. Credit ratings firm Fitch downgraded RadioShack’s debt to CCC, saying “there is a lack of stability in the business and no apparent catalyst to stabilize or improve operations.

The irony is that for RadioShack, selling iPhones is a rotten business. RadioShack’s profit margins on iPhones are much smaller than the profit margins on other products RadioShack tries to sell. Consumers have walked into the store to buy the lower-margin products and nothing else. The result: Gross margin was down 850 basis points to 37.8%; analysts watching the stock were expecting 40.6%.

RadioShack has tried every trick in the book. A few years ago it hired a rock star CEO, Julian Day, who got $21.4 million in cash and exercisable options, fired employees via email, stopped talking to Wall Street, and presided over a steep operational decline. James Gooch took over as CEO last year and managed to create some hope that the wireless strategy could work. But in 2012 RadioShack’s stock is down by more than 72% and now changes hands for $2.60.

via RadioShack’s iPhone Strategy Is Working Well: What A Disaster – Forbes.

Strange Random Strategy Quote:

“The essence of strategy is choosing what not to do. ” ― Michael E. Porter

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Posted on July 27, 2012, in Article and tagged , , , , , , , , . Bookmark the permalink. Leave a comment.

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