Rumor Mill Redux: Dell to Buy RadioShack

Discussion
Apr 24, 2008

By George Anderson

An unusually high number of options traded on RadioShack stock over the past couple of days have led some to speculate (hallucinate?) that Dell might be interested in purchasing the struggling consumer electronics chain.

As would be expected, neither company had any comment over a rumor that first got started last May in a column entitled Why Dell Needs RadioShack on the BusinessWeek website.

In that column, the author argued that Dell needed to consider making fundamental changes to its business model including moving away, at least in part, from its consumer direct model to establish a retail presence. The rationale was that acquiring RadioShack would provide the company with that presence. Of course, Dell has moved into retail with its products now being sold in a number of chain stores including Best Buy and Wal-Mart.

Mike McCoy, an analyst Retail Forward, told the Fort Worth Star-Telegram, “Personally, I just don’t see it. The only [thing] Dell would get is locations, and somehow they would have to acquire the retail expertise.”

If Dell were to purchase RadioShack, it would be buying into a business that hasn’t demonstrated it has a reason for being. The company has managed to use cost-cutting measures to prop up its earnings but has failed to demonstrate it has a real plan to drive revenues.

Discussion Questions: Assuming it were to happen, what would a Dell acquisition of RadioShack mean for the two companies? What is your assessment of the challenges and opportunities faced by each of the companies without a deal taking place?

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10 Comments on "Rumor Mill Redux: Dell to Buy RadioShack"


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Max Goldberg
Guest
14 years 29 days ago

I agree with Ryan, it would give Dell a branded outlet. That having been said, in order to compete with, or at least be seen as comparable to, Apple stores, Dell would have to retrain Radio Shack’s employees, retrofit the stores to properly display Dell products and redecorate them to be appealing to consumers. It might be easier for Dell to start from scratch.

Jeff Weitzman
Guest
Jeff Weitzman
14 years 29 days ago
Apple didn’t have any retail experience and look how that turned out, so I wouldn’t worry too much about that. But Apple had something that Dell didn’t–style–and that carried into their retail stores, with innovations like the Genius bar, and a fashion sense not seen in CE retail before (aside from a few Sony showcases). Dell might have an interesting opportunity to leverage the RadioShack nerdiness and their Alienware line, and create the “anti-Apple” store: with a hard-core gamer style and a showcase for the Alienware designs. Still selling the full Dell line, they’d differentiate themselves from the fashion-like Apple stores and the bland supermarket-like Best Buys. RadioShack’s history as the place where you got your first electronics kit, an RC car, batteries for everything (I actually belonged to the RadioShack battery club when I was a kid!) could be the jumping off point for their marketing–Alienware is what happens when RadioShack kids grow up and move on from kits to creating kick-ass modded computers. But they’d probably have to kill the RS brand and… Read more »
Mark Lilien
Guest
14 years 29 days ago

RadioShack’s financial model: thousands of low volume locations, with very high margins to pay for the low volume. Apple store financial model: very few locations with almost no other meaningful outlets for the brand, and extra margins because of the exclusivity. Dell’s financial model: low margins with low overhead because their products are commodities whose competitors are all price-driven. If Dell bought RadioShack, how would Dell have the margins to pay the high per-location RadioShack overhead?

Janet Dorenkott
Guest
Janet Dorenkott
14 years 29 days ago

If Dell can streamline the administration and overhead of RadioShack while leveraging expertise in retail that exists then it might work. But Dell would definitely have to update the stores. And, if their goal is to compete with Apple then they would have to really modernize the stores and have some very cool products to display.

I walked into an Apple store on a rainy, cold, Chicago night in March and it was packed with people playing with iPods and other cool “toys.” The Apple stores have one of the highest retail, square foot, profits. If Dell could earn a fraction of the square foot profits that the Apple stores get, they will be successful.

Ed Dennis
Guest
Ed Dennis
14 years 29 days ago

It could be a boon to Dell. Many RadioShack employees are very knowledgeable techie geek types. Can you imagine Dell with a local service unit in every RadioShack. Would this let Dell abandon India? (Gets my vote.) Could this also strengthen Dell’s sales of peripheral items like printers, scanners, networking stuff? The biggest fear most have is hooking this stuff up; the RS people know how to do that. I think it would be a winner. I also think it would be a winner to develop some modern day kits for sale in RadioShack. Heck, when I was growing up you could buy a kit that would allow you to build a stereo amplifier, a short wave radio and lots of other stuff. Why couldn’t they offer a computer kit? RS thrived for many years because they were involved with their customers. A Dell purchase might allow them to get involved again.

Kai Clarke
Guest
14 years 29 days ago

Dell’s purchase of RadioShack would be a nightmare. There are no strengths that RS could bring to the Dell purchase, and Dell’s expertise (profits) depend on their ability to drive profits through their logistics/supply chain management. Dell needs to focus on more partnerships like their Wal-Mart relationship in establishing a strong presence in retail. Purchasing a failing retailer will not get them the presence that they need. RS has other issues, including selection, management and financial modeling that need complete overhauls.

Ryan Mathews
Guest
14 years 29 days ago

I would give Dell a branded outlet similar to the Apple store (or if anyone remembers them the Gateway Country stores). Whether that’s a good idea or not remains to be seen. I don’t think it does anything for the RadioShack brand which (to be charitable) is a little dated.

Camille P. Schuster, Ph.D.
Guest
14 years 29 days ago
Multi-channels are important for appealing to multi-dimensional consumers. Retailers have a real challenge getting consumers to come into their outlets AND purchase. Many consumers like to see, touch and try products before purchasing. Then these consumers can choose the channel of choice for purchasing. Dell has no outlet for seeing and touching products before ordering so can’t really appeal to consumers with that need. Creating their own outlets would be a huge expense. Finding an outlet that could generate traffic and the right in-store experience would is critical to the success of this strategy. Finding a retailer willing to showcase the product knowing that many consumers might go online to order the product from Dell could be a challenge. Making the partnership or collaboration or merger will face stiff obstacles. Will consumers actually want to go to RadioShack to see, touch, and play with the computers? Will the store be designed to make that happen? Will the employees be trained to make that happen? What will RadioShack get out of the investment in store design… Read more »
Roger Selbert, Ph.D.
Guest
Roger Selbert, Ph.D.
14 years 29 days ago

I like the idea; looks like a win/win to me. I am convinced the future of retail is multi-channel integration, giving consumers maximum choice and convenience. And the technology/computer/innovation market is still set for decades of growth, as more and more areas of life (and consumption) move among and between channels or platforms (I’m thinking entertainment, education, information, financial, health, etc.).

What a great market position to be in.

(Further analysis later.)

Brian Anderson
Guest
14 years 19 days ago

Having struggled through the past year, Dell is starting to turn around. The company’s rapid expansion in retail also has helped boost volume and address competition from other leading players.

Dell has been expanding in retail, cutting costs and making acquisitions since founder Michael Dell returned to take the CEO position a year ago. RadioShack/Dell is a win/win for both. The key driver–people. To run the retail unit, they must do what T-Mobile has done, be strategic, recruit and hire world class retail operators. Those that can hire, train, lead…and provide raving fan service.

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