We are currently witnessing the movement away from big box stores. This can be attributed to many factors, everything from the growth of Amazon and the Apple stores to the slowing of Television sales. How does this all play into the story of RadioShack and Best Buy, and why are these names even to be spoken of in the same article? The answer comes simply and surprisingly; large sized big box stores are dying and Radioshack’s small square footage and large footprint could be just the right pump of adrenaline for Best Buy.
You have heard and read about the way in which electronic stores are utterly useless, that no one shops in them. Buying electronics in stores has declined for quite some time now and been replaced by an increase in the buying of electronics online. Many assume that the previously stated items are the only factors in the lackluster performance of electronic stores, if that was the case than Apple would have never opened its retail stores. Americans like playing with merchandise before they purchase. Yes a movement has occurred towards purchasing online, but the need to see the merchandise in the store still exists. Apple stores have boded well for the company overall and for similar reasons (need to see and feels products) you will find a packed Best Buy on Saturday. Ask any generation or any personality type, before a major purchase, one must have a one on one experience with the product. Many bears will argue that Best Buy is merely a showroom for Amazon, that argument holds merit, but through a strong strategy, huge footprint (with the help of Radioshack), and quality products, Best Buy can continue to be a profitable electronic store giant.
In a faltering business the best move may be consolidation. It appears that their are many options when it comes to buying electronics, this is true to a certain extent. Though, when it comes to quality electronic stores there are just a few and Best Buy presents itself as a giant in the space. Consolidation may be key here, because one of issues that has repeatedly surfaced pertains to Best Buys square footage. These huge box stores have large cost associated with them. Consumers electronics, computing, and mobile phones are the largest aspects of the Best Buy operation totaling almost 3/4 of revenue. The 3/4 of their revenue obviously does not take up 3/4 of their square footage. Through consolidation Best Buy could push their premium, large margin products in a smaller square footage store. With such a large portion of their revenues in such a specified aspect of their company, their large stores are just not doing them justice. Looking back at Circuit City, one can recall that the death of this electronics giant was due to square footage as well, making the Best Buy argument for smaller square footage very real. An acquisition of RadioShack could be just the move to smaller square footage that Best Buy needs.
Einhorn recently mentioned exiting his position in the electronics giant, citing the company for not having a solid strategy going forward. To compete with the online giants Best Buy will undoubtedly have to rethink its game plan, or it will fall by the wayside like Circuit City. The RadioShack footprint encompasses over 7300 stores and unlike Best Buy, RadioShack sits in many malls and smaller shopping centers. The RadioShack footprint is undoubtedly worth its weight in gold. The strategy should slap these execs in the face, take their giant status to that of a god. If Best Buy can go from being a mere big box store to a conglomerate of big and small box stores the opportunities are boundless. Radioshack has the ability to be in any small town or any neighborhood, an ability that Best Buy does not and will never be able to have. Taking the abilities of RadioShack and adding it to the arsenal of Best Buy could revolutionize Best Buy’s strategy and save their dying industry. The smaller stores could suggest margin compression, but when it comes to small stores closer to home, customers have and always will pay for convenience.
The only way that RadioShack will have the best products is through Best Buy. The only way RadioShack will surive will be to have the best products. The only way that Best Buy will compete with the likes of Amazon is to try an approach besides big box stores. The possibilities are endless with a change in strategy, because as I mentioned earlier, Americans are humans at heart and like to touch and feel merchandise prior to purchasing. If there was ever time for Best Buy to come in and buy out Radioshack for the bargain of a lifetime, that time would be now. RadioShack has lost over 80% of its value in the last year and hell, its cheap. Survival is key here when it comes to the fast paced age of the internet consumer and this may just be the edge that Best buy needs.
Last point that I want to drive home many often overlook, brand name. Best Buy has been synonymous for years with quality products and quality service. RadioShack has always been the cousin that no one wants to acknowledge. By re-branding these stores and making them part of the giant that is Best Buy, the traffice alone in these smaller stores will increase dramatically, just by mere Best Buy branding. The potential is there for Best Buy to make moves to smaller square footage easliy and cheaply. With increased competition from online retailers, if Best Buy wants to survive as a big box, it may just have to bring in the little box as part of the team.
Photo by Bekathwia