The executive shuffle continued last week at RadioShack Corp. as President and Chief Operating Officer Claire Babrowski said she will step down at the end of the month. But the chain’s woes go far beyond the front office’s revolving door.
Babrowski joined the company last summer and was named interim CEO in February after dubious resume claims forced the departure of former CEO David Edmondson. She was passed over as Edmondson’s permanent replacement, though, when Julian Day was named CEO last month.
Babrowski-whose rise from 16-year-old crew member for McDonald’s Corp. to senior executive vice president of the fast-food giant is the stuff of legend-follows former CFO David Barnes, who last month said he will leave the electronics retailer to take a job with Western Union Holdings Inc.
The company said it has no plans to fill Babrowski’s position, and declined to disclose her plans for the future. Barnes’ position was filled by James Gooch, a certified public accountant who has worked with Day.
“I am proud of the progress we made together,” 49-year-old Babrowski said in a prepared statement, “and will be cheering from the sidelines as they take RadioShack to the next horizon.”
What’s looming on that horizon is very much in question, however. The chain has been buffeted this year by shrinking profits and declining sales, particularly of its wireless offerings. RadioShack is shuttering hundreds of stores nationwide and plans to let more than 400 employees go from its headquarters by the end of August.
The future looked far brighter for the company just a year ago. RadioShack had gained substantial traction selling phones and services from Verizon Wireless and Sprint Corp., but the chain opted last year to drop the nation’s second-largest operator Verizon Wireless in favor of the largest-Cingular Wireless L.L.C.-and added Nextel Communications Inc.’s iDEN offering following its acquisition by Sprint. Sales plummeted, though, as RadioShack struggled with the transition.
“I think that dislocation, that changeover, had a really dramatic effect,” said Neil Strother, research director of mobile devices for The NPD Group. “For many years, people knew they could go to a RadioShack store (and buy Verizon’s offerings), then boom, they couldn’t…. That’s just hard for consumers to digest.”
Indeed, the move has encumbered RadioShack’s already-slowing wireless sales. The company had trouble keeping Cingular products in stock and training staffers on the carrier’s offerings, which showed in a dramatic 85-percent plunge in first-quarter profits. In February, after Edmondson’s troublesome rein, Babrowski unveiled a turnaround plan that included closing as many as 700 of its 7,000 stores, relocating some outlets to more favorable locations and concentrating efforts to improve its top-performing stores.
The bleeding has continued, though. A slight increase in wireless revenues wasn’t enough to offset lagging overall sales during the second quarter, and RadioShack reported a quarterly loss of $3.2 million, a dramatic plunge from the $52 million the company netted during the same period last year. Credit ratings agency Fitch Ratings last week cut RadioShack to noninvestment-or “junk”-status.
Shares of RadioShack have declined steadily in the past year as well, although the stock got a much-needed boost with the addition of Julian Day. Day has drawn accolades for reviving Safeway Inc., where he served as CFO, and Kmart, which he led out of bankruptcy as president.
But RadioShack faces an uncertain future in an increasingly cutthroat wireless market. Carriers are building out retail locations in an effort to increase brand recognition and cut third parties out of the sales process. Handset manufacturers are approaching the market as well, with streamlined flagship stores similar to Apple Computer Inc.’s post-modern outlets.
Finally, big-box retailers are making wireless a priority, training staff members and giving prime shelf space to eye-catching new handsets. Wal-Mart Stores Inc. moved into the postpaid market this summer, reselling phones and service contracts from Verizon Wireless in an effort to complement its prepaid offerings from TracFone Wireless Inc., Virgin Mobile USA L.L.C., T-Mobile USA Inc., Alltel Corp. and Movida Communications Inc.
All that competition will make it that much tougher for RadioShack to regain its position among the top third-party sellers in wireless.
“RadioShack is not only competing against the big boys-the carriers-but now they’re competing against the retail giants,” Strother said. “They’re just in a tough spiral. I don’t think there’s no hope, but they’re in a very tough position.”