Magnacca seems like an odd choice for RadioShack’s top job. He has no experience in the consumer electronics industry. He has worked in the drugstore industry for over a decade, and worked at Canadian supermarket chain Loblaws prior to that. Given the magnitude of RadioShack’s challenges, the company is clearly taking a big gamble by hiring an outsider like Magnacca. However, RadioShack clearly needs fresh thinking, so thinking “outside the box” could prove to be a risk worth taking.
And now, a new strategy?
Magnacca will have to get his hands dirty from day one in order to fix RadioShack. The company’s traditional business — selling cables, adapters, parts for DIY projects, computers, TVs, etc. — has been declining for several years. To some extent, demand for these products has dropped, while competition from online retailers such as Amazon.com, Inc. (NASDAQ:AMZN) has grown rapidly.
In response to this trend, RadioShack tried to diversify its revenue base by expanding into the “mobility” segment by selling cellphones and wireless plans, as well as cellphone accessories. However, the company has found that wireless product gross margins are very low. Additionally, RadioShack faces strong competition in this segment.from Best Buy Co., Inc. (NYSE:BBY)‘s “Best Buy Mobile” stores, which carry a similar product mix. Moreover, Best Buy plans to grow the Best Buy Mobile concept significantly going forward.
Thus, RadioShack needs a new strategy. Through the first nine months of 2012, RadioShack’s revenue declined by just 1%, but gross margin dropped from 44.4% to 37.6%. The company therefore swung from net income of $60.3 million to a loss of $76.1 million. RadioShack’s current market cap of $325 million is still $300 million below tangible book value, but with losses piling up, that cushion could soon disappear.
While Magnacca has been a successful executive, I am skeptical that he can turn this ship around, given his lack of industry knowledge. RadioShack is being crushed by industry trends and big “market forces,” and Magnacca doesn’t have much time to learn the ropes before making important strategic decisions. Until he puts forward a credible turnaround plan for RadioShack, investors should probably avoid the stock.
The article RadioShack Has a New CEO: Now It Needs a New Strategy originally appeared on Fool.com and is written by Adam Levine-Weinberg.
Fool contributor Adam Levine-Weinberg is short shares of Amazon.com. The Motley Fool recommends Amazon.com. The Motley Fool owns shares of Amazon.com and RadioShack. The Motley Fool is short RadioShack.
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