Inside RadioShack’s Slow-Motion Collapse

How did the electronics retailer go broke? Gradually, then all at once

Photographer: Jamie Chung for Bloomberg Businessweek

Nathan Hill learned a lot about entertaining himself during his time as a RadioShack employee. For 15 months during 2013 and 2014, he worked at two locations in two separate strip malls in suburban Phoenix. It was dull, but Hill, a 19-year-old computer science student, didn’t mind getting paid to sit around and play his Nintendo 3DS or browse Reddit on the store computers. “On some nights I would go from 6 till 9, three whole hours, without seeing a single customer,” he says. For each hour of solitude, he was paid $7.80. If someone came in and actually bought something, he made a 2 percent commission: That usually added up to an additional $6 or so before taxes.

The few customers who did show up tended to be annoyed. Hill says a sizable portion were sullen hardware enthusiasts who blamed salesclerks like him for the emptiness of the stores. Others had reached an impasse in their technological lives. “They come in with a problem that Best Buy can’t solve,” says Hill. “They’re on their last straw.”

So is RadioShack. The company’s finances, unstable for years, have finally collapsed. On Feb. 2, Bloomberg News reported that the company is preparing to close its doors for good through a bankruptcy deal in which Sprint would take over half of the stores and the rest would be shuttered. While the negotiations could break down and the terms may change, the end game seems to have arrived. RadioShack has lost $936 million since the fourth quarter of 2011, the last time it was in the black. Its shares have lost 99.6 percent of their value since peaking 15 years ago. The New York Stock Exchange said on Feb. 2 that it was suspending trading on the company’s shares and preparing to delist its stock. The only bright spot in RadioShack’s recent past was an amusing TV spot during last year’s Super Bowl, when the company mocked itself for being stuck in the 1980s. (By the end of the year the company had slashed its advertising budget and the chief marketing officer had left.)

https://www.youtube.com/watch?v=YpkixVDFpcI

RadioShack’s options have dwindled as the losses mounted. When the company announced its intention to close more than 1,000 of its 4,000 or so stores last year, its lenders refused to go along with the plan; they were worried that paying to get out of leases and cart away unsold merchandise wouldn’t be enough to keep the company out of bankruptcy. The chaos has been building for years. The company had three chief executives between 1963 and 2005; since then it’s had six. Many executives fled or were fired. A group of employees is suing RadioShack for putting company shares into their 401(k) accounts, arguing, essentially, that the company should be held liable for doing something as dumb as investing in its own shares. Hourly employees in Pennsylvania are suing the company for $3.9 million in unpaid overtime wages. In a proposed settlement, the plaintiffs would receive $513,000 and RadioShack would admit no wrongdoing. It’s a deal the plaintiffs are willing to take to get paid before creditors start picking over the company. A judge has given preliminary approval and will hold a hearing on it later this month.

Recently, RadioShack stood by as consumers began buying their gadgets at Best Buy, or Amazon.com, or the Sprint store. RadioShack has spent the last 20 years trying on a number of identities, none of which has been a convincing fit, and testing the patience of investors, employees, and, most markedly, customers.

It didn’t have to be this way. There are still potential RadioShack customers out there. Some need HDMI cables and aren’t willing to wait for a delivery from Amazon; others have a professional need for a disposable cell phone. And then there are the tinkerers, who once served as RadioShack’s core constituency. They’re back and thriving and now known as the maker community. Yet the company has failed to capture that market, despite the efforts of Joseph Magnacca, a former executive at Walgreens who took over in February 2013. He has tried to reestablish ties to DIYers, forging partnerships with startups such as LittleBits, which makes kits for building gadgets, and Quirky, where people collaborate to create consumer electronics products; launching services to fix people’s cracked cell phone screens at several hundred stores; and beginning a program called “Do It Together,” where employees help customers with projects.

This Is Why RadioShack Is in Trouble

Hill, who quit late last year, found the sheer number of new strategies dizzying. Managers were constantly rearranging the stores, so employees had trouble keeping track of where things were. No one he knew was trained for the Do It Together campaign. When asked whether he thought customers even wanted something like that from RadioShack, he pauses. “It’s really hard to tell because so few customers come in,” he says. RadioShack declined to comment for this article.

Another former employee, Jon Bois, remembers being required to report for work at a mall outpost at 4:30 a.m. on Black Friday in 2004, only to sit idle for hours waiting for customers who never arrived. Bois, now a writer for the sports website SB Nation, wrote a piece in November arguing that searching for coherence in RadioShack’s strategic decisions was futile. “It’s like retracing the steps and doings of a drunk person,” he wrote. “Okay, here’s where he keyed the cop car. Wait, why’d he do that? I don’t know, but his pants are lying here, so this is before he stripped naked and tried to rob the library.”

Former executives who spoke to Bloomberg Businessweek, mostly on the condition of anonymity, didn’t quite put it that way. They did acknowledge, however, that the company made massive mistakes. None of them thought that RadioShack’s ruin was inevitable. When asked to pinpoint when everything went wrong, they fell into two main groups: those who argue that it happened right after they left, and those who say the damage had already been done when they arrived.

RadioShack’s TRS-80 computer circa 1980s.
RadioShack’s TRS-80 computer circa 1980s.
Photographer: D&P Valenti/ClassicStock via Corbis

RadioShack was founded in Boston by two London-born brothers, Theodore and Milton Deutschmann, in 1921. The target audience was ham radio enthusiasts; they named it after the compartment on ships where the wireless equipment was stored. The brothers set up shop on Brattle Street and spent the next several decades becoming a leading distributor of equipment in the Northeast. By 1962 the company was running nine stores and bringing in $14 million in annual sales. But it also lost more than $4.5 million that year and was carrying $7 million in debt. RadioShack’s main creditor, First National Bank of Boston, began looking for someone to buy the company and prevent it from defaulting on its loans.

One of the bank’s executives was friendly with Charles Tandy, an ambitious businessman from Texas who ran a chain of leather stores. The leather crafts business was lucrative but niche, and Tandy had been spending his company’s profits buying businesses with more mainstream potential. He had already made unsuccessful runs at two of the more established electronics chains when First National came asking for a favor. Recognizing a strong bargaining position when he saw one, he negotiated a deal to buy the business for about $300,000 and moved the company’s headquarters to Fort Worth.

The strategy Tandy laid out in 1963 served the chain well for decades: Appeal to hobbyists. Each store was small, staffed by people who knew electronics, and stocked with merchandise with healthy margins. Tandy eschewed national brand names, instead setting up his own manufacturing network to sell private brands. But even more than stereos, RadioShack wanted to move accessories, batteries, and a wide range of transistors and capacitors. All these items could be marked up heavily. For decades the chain even ran a battery club, where members were entitled to one free battery each month. RadioShack also began to define itself by its ubiquity, becoming so convenient that customers simply couldn’t ignore it. In 1966 there were 100 stores nationwide; by 1971 there were 1,000, and eventually there would be more than seven times that number.

In 1975, Tandy described the ideal RadioShack customer to a group of financial analysts. “We’re not looking for the guy who wants to spend his entire paycheck on a sound system,” he said, according to Irvin Farman’s account in Tandy’s Money Machine: How Charles Tandy Built RadioShack Into the World’s Largest Electronics Chain. Instead, he went after customers looking to save money by buying cheaper goods and improving them through modifications and accessorizing. The target audience was people who needed one small piece of equipment every week.

Nerds ate it up. In the 1970s the stores were regular stops for kids aiming to excel at their science fairs. Years before they founded Apple, Steve Jobs and Steve Wozniak used diodes and transistors purchased from RadioShack to build a “blue box,” a device that tricked the phone system into letting them make free long-distance phone calls. Michael D’Alessio, a 51-year-old Chicagoan, remembers building a radio from a RadioShack kit and then buying a long wire that he ran through his bedroom window and onto the roof, so he could get better reception. His first job wasn’t at RadioShack, but it was at a local mall that boasted one, and he would spend every break browsing its shelves. In 2008, D’Alessio started RadioShackCatalogs.com, a tribute to the 100-plus-page books filled with stuff like record styluses, tape head demagnetizers, enormous Realistic brand receivers and speakers, intercoms, and boomboxes. “I don’t think RadioShack Corporation ever realized the power of their catalog,” he wrote.

https://www.youtube.com/watch?v=KP7CsIEcfV8

The oil crisis of the early ’70s, and the resulting 55 mph speed limit, set off a craze in CB radios—“10-4 on that, Rubber Duck”—and at one point they made up almost 30 percent of RadioShack’s sales. When the CB boom subsided, RadioShack faced pressure to find something to replace it. The company’s answer—and perhaps the high point in its history—was the TRS-80, one of the first mass-market personal computers. Introduced in 1977, the TRS-80 looked like a swollen version of today’s desktops, with about 16K of memory; a 12-inch square monitor with one shade of gray characters and no graphics, unless you counted artfully piled-up Xs; and a cassette player where you could save information while you waited for someone to invent the hard drive. The TRS-80 used software designed by a little-known startup named Microsoft. An early advertisement boasted that it could be used to manage personal finances, plan recipes, or play backgammon.

The TRS-80 was a huge risk. There was no market for personal computers, and at $600 it would be the most expensive product RadioShack had ever sold. Tandy justified an initial order of 1,000 units by saying the stores could use them for inventory management if customers weren’t interested. Instead, the company ended up selling the computers faster than it could make them—and, in the early years at least, the TRS-80 was more popular than Apple’s machines.

Over the next decade, RadioShack succeeded at manufacturing and selling its own computers, while also serving as the first stop for many people looking to build or modify their own devices. But the TRS-80 couldn’t keep up with the personal computers being made by competitors, and RadioShack’s hardware business stopped being profitable. By the early 1990s, says one former executive, it was his job to make sure that computer sales didn’t exceed 10 percent of the company’s overall business, because it made so little money from them. RadioShack stopped making PCs in 1993. It needed a new anchor, and it soon found one: cell phones.

 

 

 

https://www.youtube.com/watch?v=694TX2lQ7Uo

In 1993, Leonard Roberts, the former chief executive of Shoney’s and Arby’s, was looking for a job. He’d narrowed the search to two possibilities: Blockbuster Video, which seemed very glamorous to his three young daughters, and RadioShack, which did not. The chain’s sales had shrunk more than 17 percent the year before.

Roberts disappointed his kids by choosing RadioShack, largely because of research about its customers. “They trusted RadioShack, which was an anomaly at the time. They came to RadioShack for reasons they would not go anywhere else,” he says. The store’s employees could “help them figure out how to hook up a VCR to their TV, and they needed cables and wires and batteries. And I just saw this unbelievable potential that was not being provided by any retail organization.” Roberts served as president of one of the company’s operating divisions for six years before becoming CEO in 1999.

When Roberts arrived, the company was already in the middle of a makeover. It was opening its own big-box stores under the brand names Incredible Universe, Famous Brand Electronics, and Computer City. They were essentially anti-RadioShacks. Incredible Universe stores were vast places with in-store restaurants, karaoke studios, and huge selections of big-screen televisions and home appliances. The new chains drove up sales. RadioShack’s revenue grew to $6.3 billion in 1996, a level that it hasn’t come close to since. But selling lots of stuff isn’t everything. The same year that RadioShack’s sales peaked, it was unprofitable for the first time in recent memory. The company realized it had to pull the plug. “I don’t think we knew how to operate those stores,” says Roberts. “They failed, I mean, in any measure you want to measure it.”

But RadioShack had also found something it was good at. Cell phones were becoming popular, and customers were intrigued but intimidated. Wireless carriers and device manufacturers were looking for someone to hold first-time buyers’ hands. Given that RadioShack stores were already places where people sought technology advice, the chain was well-placed to play the role of helpful tutor. It didn’t hurt that the stores were everywhere. “It was a massive land grab to get everybody signed up, and RadioShack provided that scale,” says David Schick, managing director of equity research at Stifel Financial, the investment banking firm.

 

 

Roberts negotiated deals with carriers that gave RadioShack not only a cut of the initial device sale but also payments from customers’ monthly wireless bills. A longtime executive who left the company in the mid-2000s compared the wireless business to a narcotic, with the company bingeing on phone sales while ignoring the other parts of its business. The addiction had consequences. Signing someone up for a mobile contract took about 45 minutes, and many stores were staffed for long stretches by a single employee. Customers in search of help regularly left in frustration, and foot traffic began dropping, says Claire Babrowski, who in 2005 and 2006 served in various executive roles at the company.

The decision to focus so heavily on mobile planted the seeds of what’s happened in recent years, according to Babrowski. “My guess is that, if you could go back to that era, maybe a different decision would have ended up a little differently for RadioShack,” she says.

RadioShack lost in e-commerce, too. It tried a ship-to-store model with RadioShack Unlimited, which Roberts says was supposed to be a way to learn how to run the kind of huge warehouse that lets Amazon quickly ship individual items. But RadioShack’s executives never truly committed to e-commerce, says Babrowski, in part because they were worried about diverting attention from the difficulties at the stores. And they were not the only ones to lose to Amazon.

Roberts retired in 2005 and was succeeded by David Edmondson. He served as chief executive for less than a year, stepping down after he got caught lying about his education. Babrowski became interim CEO for several months until the company hired Julian Day, the former chief executive of Kmart. Babrowski resigned, saying that Day was too focused on cutting costs. Edmondson declined an interview request, and Day couldn’t be reached for comment.

Day arrived after a six-year stretch in which the company had lost two-thirds of its value. He spent most of his energy assuring Wall Street that RadioShack was getting its house in order, according to analysts who follow the company. This led to a period of cost-cutting at the stores and at headquarters. By any financial yardstick, RadioShack has been in decline ever since. Its stores look like they were preserved in amber 10 years ago.

RadioShack’s success with phones didn’t last. Mobile carriers stopped relying on the chain to sell devices and eventually negotiated deals in which they didn’t have to pay the company monthly residual fees. All the major wireless carriers operate their own retail locations now, often adjacent to a RadioShack. The increased competition has driven down sales—revenue from mobile phones dropped about 25 percent last quarter—and each sale has become steadily less profitable. The extensive network of stores, once an asset, has become a huge liability. “The margins have been competed away,” says Stifel’s Schick. “If you have lots and lots of stores—and lots of rent—that’s pressure.”

Attempts to squeeze maximum value out of each person who walks into one of its locations has made shopping or working at RadioShack an irritation. Employees have always been asked to make the hard sale. In the past, they were reliably aggressive about getting a customer’s name and address, so they could flood mailboxes with circulars offering specials on batteries. Hill, the former Phoenix employee, says he was required to offer insurance plans to customers for each item they purchased—and told to keep pushing until a customer said no three times. Another former employee says that managers at the location where he worked in Columbia, Md., would allow employees to claim commissions on phones only if they also sold at least one accessory. Otherwise the manager took the sale. He says he left because he felt awful pushing customers to buy things they didn’t need.

The rise of the cell phone also helped kill the rest of the retailer’s business by destroying the market for so many of the gadgets RadioShack used to sell, such as voice recorders, GPS devices, answering machines, and camcorders. Early last year, Steve Cichon, a writer for the website Trending Buffalo, sifted through a RadioShack ad from 1991 and found that his iPhone had negated any need for 13 of the 15 products being sold. The listed price on those items: $3,054.82.

On the way down, stores that morphed into cell phone kiosks staffed by aggressive salespeople alienated the DIYers. Dana Macri, a 32-year-old from Queens, N.Y., reminisces about poring over his local store’s array of radio-controlled cars as a kid, then graduating to the bins of transistors and capacitors as a teenager. He recalls a trip he made to the same store six months ago. “I needed a Y cable to turn an RF into a mini, and I thought they would at least know that,” says Macri, who now works at a video production and equipment rental company. “I went in and asked for the cable, and the woman looked at me like I spoke a different language. She basically walked me over to the rack with all these adapters and cables and stuff and said, ‘This is what we have.’ ”

Losing the allegiance of people like Macri led to a particularly cruel irony: RadioShack missed a trend it started. In the last several years, tinkering became cool again, as seen in the rise of Maker Faire, 3D printing, personal drones, and tiny, dirt-cheap computers such as Raspberry Pi. Although RadioShack is trying to catch up—its website recently posted instructions for making a salt spreader for a snowy driveway out of a remote-controlled car, a few water bottles, and a LittleBits motor—it probably started too late. Now, says a senior executive who left the company recently, most of the stores are loaded with outdated inventory, and customers have been trained to go elsewhere anyway.

To survive independently, RadioShack would need to shrink substantially through bankruptcy, says Lawrence Perkins, a restructuring expert who runs Sierra Constellation Partners, a consulting firm. According to Bloomberg News, RadioShack has also discussed co-branding stores with Sprint instead of retiring the RadioShack brand altogether. But it’s not clear how much value the RadioShack name still holds. Its network of stores might be more attractive for their physical footprint alone. In a way, it would be a fitting end for the chain to get completely swallowed by one of the cell phone carriers it’s been partners with for the past 20 years.

Amazon has also talked to RadioShack about taking over some of its stores. Scott Galloway, a professor of marketing at New York University’s Stern School of Business says this would be a natural way for Amazon to jump-start its physical retail business. “They wouldn’t be stores so much as branded warehouses,” he says.

The least likely possibility seems to be that the company will emerge from its current crisis to stand on its own. The latest RadioShack news reads like an obituary for someone you thought was long dead. “I wouldn’t even call this a failure. I’d call it an assisted suicide,” says Galloway. “It’s amazing it’s taken this long for this company to go out of business.” 

An earlier version of this story ran online. Since publication, RadioShack has filed for bankruptcy. Read the story  here.