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Can RadioShack Corporation (RSH) Turn Things Around?

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RadioShack Corporation (NYSE:RSH)There are few companies in greater need of a new image than this 94-year-old company that lost $194 million last year — a company that continues to struggle amidst changes in consumer purchasing habits and soft sales. Many analysts lump this company in with companies such as GameStop Corp. (NYSE:GME) and Best Buy Co., Inc. (NYSE:BBY) — companies that many believe will hang around for a few more years until consumer habits change and the inevitable happens: They fail to adapt to the ever-changing marketplace and go bust.

Cheap capital and a decent balance sheet

RadioShack Corporation (NYSE:RSH) — a junk-rated retailer — has sought to allay investor concerns that it could run short on cash. Currently, this company has more than $800 million of cash on hand and money available through borrowing. And this company is working with various investment banks to evaluate ways to strengthen its financial position. That is because “the Shack” is hoping to raise money ahead of the fall, when it will be stocking up on inventory for major promotional events that typically occur during the critical holidays.

Making the right moves

In addition to fixing its balance sheet, RadioShack Corporation (NYSE:RSH) appears to be doing all the right things. A few months ago, for example, the company hired Joseph Magnacca, a former Walgreens marketing maverick. Since acquiring Magnacca, RadioShack has dramatically improved its product mix and marketing campaigns. The strategy is relatively straightforward: carry hot-selling items that will generate traffic, narrow offerings in slow-moving categories, bring in high-margin private label goods, reduce clutter, and improve the shopping experience. A few weeks ago, after work, I walked past a RadioShack Corporation (NYSE:RSH) store on a busy Manhattan corner that had touchscreen displays and appeared to have undergone significant remodeling. Although this renovation is admittedly probably on the high end of the remodeling efforts given that it is in Manhattan, it is symbolic of a brand that is both at a critical juncture and in transition.

No longer a showroom

A few years ago, many analysts predicted that RadioShack and Best Buy Co., Inc. (NYSE:BBY) were going to go belly up like Circuit City. They believed that Best Buy and RadioShack Corporation (NYSE:RSH) were becoming showrooms for consumers. Customers go into stores to better understand the features and benefits of products. Then, they purchase those products more cheaply through Amazon.com, Inc. (NASDAQ:AMZN) or eBay Inc (NASDAQ:EBAY). Or so the story went. As we know, though, Best Buy responded to its naysayers by price-matching the online retailers, and most of the retailers followed suit. As a result, over the past six months, Best Buy Co., Inc. (NYSE:BBY)’s shares have gone on a tear, rising from a low of slightly more than $11 to over $30. In fact, over that time period, Best Buy was the best performing stock in the S&P.

Being small has its advantages

Similar to Apple Inc. (NASDAQ:AAPL) and Best Buy Mobile stores, RadioShack Corporation (NYSE:RSH) stores are now focusing on creating an interactive, engaging experience for the consumer. RadioShack’s new layouts appear to hit the sweet spot of having the right mixture of low-margin, highly sought-after products that bring people into the store, and high-margin products that both increase transaction size and ensure profitability once the customer is inside. That is a strategy that both Apple Inc. (NASDAQ:AAPL) and Best Buy mobile stores have successfully executed. And by reducing the number of product offerings and its overemphasis on smartphones (unlike Apple Inc. (NASDAQ:AAPL) and Best Buy) RadioShack will be well-positioned to quickly adapt to trends and changing market conditions as well as to experiment with various store designs. All in all, RadioShack Corporation (NYSE:RSH) is attempting to use its size, which many previously considered to be a significant constraint because its small store size and limited product selection relative to its competitors made it harder to attract customers, into a competitive advantage.

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