Radio Shack Evidence Essay

Submitted By Alycej43
Words: 5022
Pages: 21

the current management team needs significant help in creating and executing a truly efficient and effective turnaround plan. Otherwise, if an operational plan isn’t put in place — and soon — RadioShack could find itself in a very ugly situation
RadioShack management assumed in its turnaround plan that as a result of the closing of 1,100 stores, it would naturally follow that the decline in same-store sales (nearly -10% as of 2013) would immediately halt.
Furthermore, through the closure of these locations as outlined in the plan, RadioShack would have, in essence, created an $800m division of underperforming stores, creating a process that management assumed would remain cash neutral.
Assuming these locations have approximately $150m in inventory, the plan created a significant hole in RadioShack’s ability to borrow just at the time the company is facing severe liquidity pressures. In short, management assumed it could close locations at an almost inhuman speed, resulting in a plan that better resembles an attempt to catch a falling knife.
Management also posited, on a pro-forma basis (pending store closures — see breakdown here), that while net revenue was projected to decline nearly $800m (from $3.43b in 2013 to $2.642b in 2014) — and assuming a streamlined gross margin 34% from 2013 — this turnaround plan would have resulted in generating nearly half as many gross profit dollars as the company did in 2010 (from $1.17b to $901.8m).
In order to turn EBITDA break-even, then, SG&A would have had to drop nearly 35%.
Finally, management assumed that the company’s current leadership team possessed the skillset necessary to oversee the closing 1,100 stores while balancing the severe liquidity and strategy issues that threaten to strangle the company by October 2015.
In short, RadioShack management’s proposed turnaround plan as presented to creditors posed several dangerous assumptions (despite the fact that RadioShack currently has undrawn borrowing capacity) that failed to tackle the most immediate issues threatening the store.
So what’s next for RadioShack? Most likely a fight to secure emergency financing, the filing of Chapter 11 — and the ultimate closure of approximately 1,500 stores — and a strategy to emerge that includes expansion into and securing licensing in foreign markets. But at this point, however, given my lack of exposure to the case, I can posit as such as only conjecture.

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The company founded 88 years ago is hurting for cash. Some analysts say RadioShack needs to have a killer holiday shopping season to survive another year. And to get much further, it has to answer a question it's long avoided: Is RadioShack a convenience store for techies, or a brand that inspires customer loyalty?

Radioshack has something like ten thousand different products,” he says, “The stores are cluttered."
Pachter says RadioShack is on its last leg and while its new CEO is a competent man, he doesn’t have enough capital to solve all the company’s problems.
"The CEO is making changes there but it's really a confusing place. It's not a real pleasant experience, and you have to look for the cool stuff."
Pachter says RadioShack does not neatly fit into the well-known tale of 'retail store dies as Internet sales surge.' The company survived as others like Crazy Eddie and The Wiz died.
But now, Radioshack has to build a relationship with a core group of dedicated customers.
“Home Depot has paint matching. You can come in with a chip and they’ll match the paint color. Abercrombie and Fitch has private label merchandise that you want. But RadioShack has neither.”
This strategy of casting a wide net, winning back the old customers and recruiting the new -- it just might be what got RadioShack into this predicament in the first place.
On that same earnings call, CEO Joseph Magnacca said RadioShack's