The struggling American franchise of electronics retail stores, RadioShack Corp. , is planning to close nearly 500 stores -- 10% of its total.
Earlier, RadioShack undertook 5 strategies to restructure its business model which include redefining the brand, revamping product assortment, reinvigorating stores, achieving operational efficiency and attaining financial flexibility.
The company’s decision to shut underperforming stores is part of its strategy to bring the company back on the growth track. However, we believe that it will be difficult for the company to turn around its business because of competition emanating from retail giants like Amazon.com Inc. (AMZN - Analyst Report), Best Buy Co., Inc. (BBY - Analyst Report) and Conns Inc. (CONN - Snapshot Report).
RadioShack’s core Consumer Electronics retail business is on a secular downtrend. Nowadays, consumers prefer making online purchases to visiting retail stores. The rising trend of shopping through tablets and smartphones is lowering profits of the retail industry.
RadioShack posted weak third-quarter 2013 financial results. Notably, the comparable store sales for the company-operated stores and kiosks (stores and kiosks that have been operational for at least a year) were down 8.4% in the reported quarter.
This is a key retail performance indicator measuring growth from the existing sales locations.In the third quarter, the company had $149 million free cash flow against a negative $12.1 million in the prior-year period. So the closure of stores will further increase the clash flow and will improve margins in the upcoming quarter. RadioShack is scheduled to report its fourth-quarter results later this month.
RadioShack currently has a Zacks Rank #3 (Hold).