A little background
First thing, as the article I linked above noted, they were wildly oversaturated. In Kalamazoo, there were two shopping malls on West Main St, on the west side of Kazoo, directly across the street from each-other. They both had Radio Shacks, then there was a third store in a strip center on Stadium Dr, about 2.5 miles away. There was another, an old one, in a converted fish and chips shop, in the back of a parking lot, on S Westnedge, on the south side of town. A mile down the road, there was another Shack inside Crossroads Mall. Then there was the shack I had in Easttowne Mall, on the east side. This is in a metro area of 250,000.
As an outgrowth of having so many stores, the sales of slower moving items were spread way out, so we were constantly in a position of trying to get full price for an item that had been a floor sample for a year, because the item turned so slowly the store could not afford any backstock. I don’t remember for sure what RS’ inventory turn rate was, but it was horrible, something like 4 times a year, or less.
RS had tremendous buying leverage with vendors. Early on, the company set up a trading company in Japan to handle relations with vendors. Elaine Yamagata was on the Tandy Board for years. In the 70s, the competition was mom and pop TV and appliance stores, that would buy things like component audio from a distributor, maybe a dozen pieces at a time. RS would go direct to Matsushita, Trio, and Sony, and buy an item by the thousands at a time. RS would match the mom and pop shops at full catalog price. When RS put something like component audio on sale, they would take 40% off, blow the mom and pop out of the water, and still make a profit.
Then, the market changed. The “fair trade” laws that allowed OEMs to enforce “suggested retail price”, to prevent predatory pricing, were repealed. That enabled the discounters like Best Buy. Then it was a question of who had the most efficient operation. As I said, an RS needed 40 points of GP to break even. I read, years ago, Best Buy runs on 19%. Management’s response to this market change? Whenever anyone got up at the management breakout session at the annual meeting and tried to say RS was not competitive, Bernie would thunder “I’ve been in this business 40 years, I know everything” (heard that with my own ears) Another pearl from Bernie “we do people a favor when we sell them our stuff”. Even my DM was following the company line, asking managers like me “do you think our product is worth the price?” (you better say “yes” if you want to keep your job).
So, plan Steve to save the Shack:
-close probably 80% of the stores, and treat RS as a destination store, not a convenience store.
-get out of the fancy shopping malls, because the occupancy costs destroy the profits. (that little, old, RS, hidden away at the back of a parking lot was a gold mine, because the occupancy costs were peanuts)
Get rid of the redundant stores and the expensive locations that raise costs, without raising sales, and the efficiencies of their purchasing can make it through to the price on the shelf. But would RS do it? Nope. When Len Roberts was hired in to replace Bernie, he said he wondered why RS’ pricing was the way it was, but, he said, over lunch, Bernie converted him to the RS way.
This is where that old, small, RS was, the one that was making a handsome profit into the early 90s. It was really tucked away. The building just visible on the right was a restaurant. Farther to the right from that was a theater. The theater was the one that was actually visible from South Westnedge.
