by Zach | February 5, 2014 9:15 am
In the midst of one of the worst Super Bowls in years, a few companies came away winners via their ads. Among the most favorably reviewed by viewers was surely RadioShack (RSH) and their 80’s-focused commercial.
The spot poked fun at RadioShack’s outdated stores saying that ‘the ‘80s called. They want their stores back’, and featured several stars from the decade’s most well-known figures. Investors apparently also liked the ad, as the company saw its stock rise by over 7% in the session immediately following the Super Bowl, on what was otherwise a pretty rough day for the market.
However, today, RSH announced that it would be closing 500 of its nearly 4,500 stores, representing a pretty big drop in its store count. The stock was off over 11% on the news (though it finished the day down ‘just’ 4.8%) and the move was a little puzzling to me as it came right after spending such a large sum on an ad that seemed to proclaim the turnaround in the company’s outlook.
While shifting its store count has probably been part of RadioShack’s broad plan to get back to profitability for quite some time, a move that closes more than 10% of the company’s stores after spending close to $8 million on an ad seems like a poor move. It also shows how out-of-touch RadioShack is in thinking that a real turnaround could be completed without a more up-to-date plan for products and a way to lure new consumers into its stores.
This debacle got me thinking about Domino’s Pizza (DPZ) and their impressive turnaround. For years, Domino’s was down in the dumps, and many regarded it as an inferior pizza chain that was in deep trouble.
And much like the consumer electronic business, pizza is very competitive, leaving little room for error once companies start to lose customers. Furthermore, Domino’s also took the route of making fun of its old pizza in order to promote its new path and how much it had changed for the better.
Yet while RadioShack closed stores and hunkered down on its dying business model, DPZ underwent a drastic transformation. The entire recipe was altered, fresh products were introduced, and the idea of the ‘new Domino’s’ was hammered home in ads for years.
The results of this program speak for themselves as DPZ has seen its share price soar by over 860% in the past five years (easily beating out both YUM and PZZA in the same time frame), and it currently has a Zacks Rank #2 (Buy) (and the support of the Zacks Strategist group on Pizza Days).
Contrast this to RSH which currently has lost 80% of its value in the past five years, has a Zacks Rank #3 and is an industry that is currently in the bottom 4% overall, and it becomes pretty clear that going beyond a well-received ad will be needed for RSH’s turnaround.
I don’t think that RSH can turn around its business, as it is falling behind its many competitors, and it is struggling to find a niche in the world of Best Buy (BBY) and Amazon (AMZN). Even the name ‘RadioShack’ is pretty out-of-date, and one has to wonder if they are willing to undergo the massive transformation that will be necessary to save their business.
Fortunately though, there is a great example of how a company can turn things around in a very competitive industry, DPZ. This firm has clearly prospered and has overcome what was a poor brand-name, and this path is really the only option left for RadioShack if it wants to survive this decade instead of being known as a relic of a former era in the consumer electronics world.
Is the Domino’s model of admitting failure and then undergoing a total transformation a good plan for RadioShack or is RSH already doomed?
Let us know in the comments section below!
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