One of the few remaining — and struggling — bastions of the glory days of consumer electronics brick-and-mortar retail, RadioShack, and perhaps the very first consumer electronics retailer just filed Chapter 11 protection.
The Shack of Radios in the Shadow of Internet Mansions
The slow death of RadioShack seems to have taken the consumer electronics industry by storm.
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I made my first electric-guitar fuzzbox 40 years ago with parts I bought from RadioShack. I will go so far as to say that RadioShack inspired me to get into the consumer electronics space. But now, this American icon, loved and frequented by every DIYer and tech geek, has been reduced to a headline, a liquidated retail space that even has Amazon looking to fill.
To RadioShack’s credit, it outlasted Circuit City, CompUSA and Tweeter. But why did RadioShack falter? And why have so many of its rivals disappeared?
The original business model that made RadioShack so successful in the era of easy access electronic retail was a slow-turn, high-margin model. It wouldn’t be a stretch for me to say they were the original China OEM (original equipment manufacturer) customer — holding inventory on thousands of SKUs under the Realistic or RadioShack moniker — mostly accessories and component parts.
Consumers did not have transparent access to pricing comparisons and product brand variety, so RadioShack and others benefited from custom-build products by Chinese factories that they could sell at super-high margins of 70 percent or higher. This worked because these accessories and parts were not available anywhere else, and they were all uniform in price — so customers didn’t know what the prices should be, and would arbitrarily pay $10 for a part that cost $1 to build.
But with the birth of e-commerce, many of RadioShack’s SKUs became easily accessible online — and with very fast delivery. Global manufacturers now had mass-market distribution available through e-commerce marketplaces and platforms, allowing them to cut out markups and middlemen and provide direct and near-direct access to millions of consumers and resellers.
Almost everything RadioShack sells is now available directly from China e-commerce channels, so products that cost $1 to build are now available for slightly more than $1. With fast domestic and international shipping, the convenience of going down the street to your local RadioShack store to pick up a badly needed part is not as convenient when you only have to wait an extra day to get the products for a drastically reduced cost.
RadioShack plans to shutter 1,100 retail locations. That will leave about 4,000 or so more still standing. Even the saturation of physical locations in strip malls and shopping emporiums couldn’t prepare for the more immediate consumer gratification of online shopping. And with retailers selling of-the-minute hardware and the corresponding accessories ecosystem, a store with that many locations selling slow-turn products that aren’t the newest and hottest in the market is bound to be overlooked.
Cost aside, product variety is a necessity for physical brands to survive the changing winds of consumer and reseller demand. Physical retailers with broader-base product offerings, like Walmart, Target and even Costco, sell beyond simply the consumer electronic accessory. This is what makes them and Best Buy successful. They sell the hardware (branded smartphones, consoles, TVs) that the small accessory is meant to work with. And they’ll even sell you a snack and cleaning supplies while you’re there in their store.
The consumer of 2015 isn’t going to head to an accessories store (which RadioShack was traditionally known as) when they could just as easily go to those generalist retailers for a one-stop experience, or click the “buy” button online.
The slow death of RadioShack seems to have taken the consumer electronics industry by storm, and is a chilling reminder to retailers that unless they keep up with demands and innovation from both ends of your sales spectrum, it could mean obsolescence.
When was the last time you visited a music store?
Noah Herschman is the COO of DHgate, the first-to-market, transactional e-commerce platform focused on cross-border trading China goods. More than 4.5 million enterprise and consumer buyers from more than 200 countries source goods through DHgate. Herschman is an e-commerce expert who built his 30-year career at Tweeter, Amazon.com, Staples China, eBay and Groupon Goods Asia.
This article originally appeared on Recode.net.
