CEO Gaffe of the Week: RadioShack
Oct 5th 2012 9:20AM
Updated Oct 5th 2012 9:46AM
This year, I introduced a weekly series called "CEO Gaffe of the Week." Having come across more than a handful of questionable executive decisions last year when compiling my list of the worst CEOs of 2011, I thought it could be a learning experience for all of us if I pointed out apparent gaffes as they occur. Trusting your investments begins with trusting the leadership at the top -- and with leaders like these on your side, sometimes you don't need enemies!
This week we'll highlight the ongoing gaffe that was James Gooch's tenure as RadioShack's (NYS: RSH) CEO.
The dunce cap
It's sad, but as some on Wall Street have proclaimed, James Gooch stepping down as CEO last week represents the greatest opportunity for RadioShack. You know your time is up when investors applaud your removal. Let's take a look at some of the key points that brought RadioShack to its knees.
First, RadioShack has failed to act swiftly in noticing the industrywide trend that consumers are looking to purchase their electronics online. Convenience is everything these days, and RadioShack's locations are often anything but ideal. Speaking personally, I can't recall the last time I visited a RadioShack, but of the two nearest me, one is located in a practically vacant mall and the other is hidden deep in a strip mall. RadioShack completely lacks a catalyst to generate traffic, as well as the locations to generate that traffic, and hasn't done enough to promote its online business. Consumers are simply using big-box consumer retailers like RadioShack and Best Buy (NYS: BBY) as showrooms, then making their purchases on Amazon.com (NAS: AMZN) at a discount.
James Gooch also implemented the operations overhaul that would entail the company moving from being a retailer of consumer electronics to focusing on smartphones and tablets. The move is likely to generate store traffic, but it also crushed margins, which are significantly higher from its consumer electronics sales. Despite RadioShack hooking up with Target (NYS: TGT) to create mobile hotspots, total mobile sales growth ticked higher by just 3.3% in the most recent quarter. Between Apple's (NAS: AAPL) iPhone, which is a known margin killer, and a 26.5% drop in consumer electronics sales, RadioShack reported a rather unsurprising loss -- its third straight.
To the corner, Mr. Gooch...
But, as his final act just weeks before stepping down, Gooch killed the only reason to own RadioShack's stock: the dividend. Understandably, after missing Wall Street earnings expectations in six of the past seven quarters and with analysts predicting annual losses through 2014, we knew the dividend was bound to go away sooner rather than later. What I can't seem to understand is why Gooch didn't go away sooner!
In the meantime, RadioShack will line up with Dorvin Lively, its previous chief financial officer, as its interim CEO while the board looks for a long-term replacement.
Let me offer my own bit of (biased) advice here: Look outside the company; look for a turnaround specialist; and/or try to sell the company for whatever you can get! I have a very hard time believing that RadioShack has the tools necessary to turn its fortunes around with such a minimal online presence and a poor company image. In a land of innovation, RadioShack is a true dinosaur.
Do you have a CEO you'd like to nominate for this dubious honor? Shoot me an email and a one- or two-sentence description of why your choice deserves next week's nomination, and you just may see your suggestion in the spotlight.
The article CEO Gaffe of the Week: RadioShack originally appeared on Fool.com.Fool contributor Sean Williams has no material interest in any companies mentioned in this article. You can follow him on CAPS under the screen name TMFUltraLong, track every pick he makes under the screen name TrackUltraLong, and check him out on Twitter, where he goes by the handle @TMFUltraLong. The Motley Fool owns shares of Apple, Amazon.com, Best Buy, and RadioShack and is short RadioShack. Motley Fool newsletter services recommend Amazon.com and Apple. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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