Transcription
In 1999, RadioShack was an absolute behemoth of business in the United States. Radio Shackology. [Music] They had 8,000 locations selling electronics of all kinds to people, $5 billion in sales, and an astounding 94% of the United States population lived within a 5-minute drive of one of their locations.
But fast forward 15 years, the chain declared bankruptcy for the first of two times. All the stores closed and eventually the brand was used for crypto pump and dump schemes in the early 2020s. Well, how did a chain as renowned and successful as RadioShack go from such high highs to such low lows in just a few years? That's what this video is about.
My name's Michael. I make videos about the rise and falls of great American companies and things we can learn about them as business owners. So, if you're interested in that kind of stuff, click on the first pen link below. There's a guide you can download that gives the top 10 reasons that the businesses I've studied in this series have failed, and you can get them all in one quick sheet to read.
Oh, and you may wonder, how is it that I'm out here in the middle of nowhere in Floresville, Texas, in front of an operating RadioShack when all of the stores have closed down and the chain declared bankruptcy? Well, stick around through the whole video and I'll explain how it is that I'm out here in front of an operating RadioShack.
In 1962, the RadioShack chain had already been in business for 40 years. But it was a struggling small group of stores in the Boston area that sold basically radio parts to hobbyists doing things like ham radio. And an entrepreneur named Charles Tandy in 1962 saw promise in the chain. So he came in and he bought it out. And Tandy decided to make it into a great business by just making some fundamental changes.
The first thing he did was focus it down. See, before he bought it, RadioShack was selling 40,000 different items. And Charles Tandy, the first thing he did was slim it down to just 2,500, optimizing and basically getting really cool for his particular target market. And that target market was basically people who needed to buy and repair electronics.
You see, back in the 1960s, electronics were really different than they are today. Back then, the idea was that you bought electronics, they were big, bulky, and they could be things that you repaired on your own. So if a part burned out, you'd head down to a RadioShack and buy a new part and put it in yourself. And in the 1960s, adults were really different than the adults you see today. A lot of them had grown up in the Great Depression. And if you know folks who grew up in the Great Depression, they were extremely frugal and very conservative with how they approached stuff. They bought things that they wanted to last. So when they bought electronics, they wanted to get fixed and keep going. And they would learn themselves how to repair them. It was pretty incredible.
And in the post-war era, the United States had a rising middle class. We were the factory of the world. We were building people things and that was trickling down to increasing wealth amongst our population. And people were getting into cars and driving more. And you were seeing things like strip centers being built where it made it really easy to just hop in your car, go down and get a part for your radio set or your TV set or whatever you needed to do. You could do it inside a RadioShack.
And so through the 1970s and 80s, RadioShack rode this trend like crazy to great heights. It was a perfect place to go and buy a piece of electronics. Whether that was a digital landline, a VCR, an answering machine for your phone, a radio, a TV antenna, you could go to RadioShack and pick it up. And if it broke, you'd show back up there to get a part for it. And if you needed batteries for it, well, they sold that, too. And by the late '90s, this was a great freaking business. They were doing $5 billion a year in sales. And as I said early in the video, 94% of Americans lived within a 5-minute drive of a RadioShack. Just incredible coverage.
And they had done this by riding successive waves also of the technology of the time. They were one of the first to introduce the home computer PC type things through the TRS-80, often called the "Trash 80," which was a floppy disk drive computer that rivaled the Apple II OS and early PCs of the days. But theirs came actually earlier. You could buy it as early as 1977. And I remember being a kid back in the '80s and '90s and seeing entire businesses run on those old-style computers with a green screen and everything. Pretty smart and pretty well-run was RadioShack at the time.
And about this time, some of the original managers like Mr. Tandy and folks like that, they started to leave the business. They were aging out. And it was a bad time for that to happen because first and foremost, electronics were shifting drastically at this time. See, back in the '60s and '70s where they'd been modular and you make changes on your own and fix them yourself, electronics started to get smaller and less modular. The idea was they would be super cheap and if they broke, you just throw them away and buy a new one. And to put that in perspective, if in the 1970s your stereo amp broke and you wanted to fix the core parts of it, that might cost you $1,000. Well, by the 1990s, buying a brand new one of those amps would cost $200 for a brand new one. There was little reason to go in and spend a bunch of money repairing old electronics. The disposable era of electronics had begun.
And generational trends were also shifting. You see, Gen X and folks like that were starting to come to adulthood in the 1990s. And we didn't have the same attitude towards "fix it at all costs," you know, "rub your hands bloody to keep the thing running" type attitude as people did before. We grew up with electronics and started to see that they were disposable and cheap. It was an entirely different attitude where we didn't even think twice about throwing something away versus what our ancestors did and our parents did, going into a RadioShack and buying parts and keeping it running until the thing basically fell apart. We just didn't do that. Gen X and millennials cared much less about making sure something kept working and knowing how it worked than they cared about making sure they had the latest and greatest and coolest looking thing.
And the '80s into the '90s started to be the rise of e-commerce as well. Even before the rise of the internet, you started to see people selling stuff remotely. Whereas early on you had to go into a RadioShack to buy a computer, now in the '80s you could go in and order online or order via catalog from a Dell or an HP or a Compaq. And when you're spending $8,000 on a computer like that, that's pretty standardized. Why would you go into RadioShack when you can order it remotely from a mail-order catalog and save a couple thousand dollars? And when e-commerce comes along, RadioShack's big footprint of expensive leases throughout strip centers and malls in the United States, that would start to prove a liability for them. They just couldn't compete on price anymore when they had all that overhead.
And with all this going against them at this point and having missed the waves of super centers and discounts and e-commerce and the electronics themselves changing, by the late '90s and early 2000s, it's very likely that RadioShack would have gone out of business at that time. But something came along that would save the chain and also kill it. And that thing was cell phones.
See, early in the 1990s and into the 2000s, all the wireless carriers were competing like crazy to try to win over and get as much market share as they could. You see, once people sign up for cell phone plans, it was like me. I've been on AT&T for 15 years now. We don't move. And in that era, that meant that the cell phone companies would pay huge bounties to folks like RadioShack if they helped them sign up new customers. So in effect, folks like RadioShack became cell phone sales warehouses. And in the '90s, the cell phone revenue for RadioShack was just under 20%. And by the early 2000s, that was 45%. Nearly half of their revenue was done around cell phones and new cell phone plans.
And the first problem with the cell phone revolution and business was that it was a giant amoeba in your pocket. And basically what this was was a device that if you look at a cell phone, it was eating up all the other specialized electronic business that RadioShack was selling. You want a specialized PDA, you want a specialized answering machine, you want a specialized radio, TV, all that kind of stuff. Year after year, new model after new model, the cell phone was eating all of those devices and putting them all into one device in your pocket. This thing that was saving RadioShack for the late '90s and early 2000s was ultimately killing it because it was destroying all the rest of its business.
And next, in the early 2000s, things got worse for the chain. And that was the evolution of the retailers themselves that they were competing with. You see, Walmart and Target in the 1990s had started an effort to double the footprint of their stores. They were adding more stores and they were doubling the size of them. And the reason they doubled the size of their stores was they wanted to add more products and more scope of what they were doing. And one of those things for Walmart and Target was building big, deep, and expansive electronics and electronic parts sections in the backs of their stores. And in this era, the trade from China and overseas was coming like crazy. And one of those things was super cheap LCD TVs. You had a situation where the RadioShack folks were dealt with basically Walmart and Target selling a lot of those TVs for Black Friday and other sales at ridiculously cheap prices, sometimes at cost or below. It was a great way to get people in to buy other stuff at Walmart and Target. It was terrible for RadioShack.
But we haven't talked about the other thing that started to kill RadioShack, especially on the new electronic sales, which was Best Buy. And by 2005, Best Buy was an absolute juggernaut. They had 800 stores. And in a big problem for RadioShack, the average Best Buy was over 20,000 square feet. And RadioShack with their small local stores and strip malls and stuff like that, they were 2,500 square feet. There was just no way that you could stock, compete, and have the same breadth of stuff that a Best Buy would have.
And RadioShack's saturation strategy at this point had been to be super convenient and right next to everybody. That meant they were in strip centers and also in malls. And with nearly a third of their locations in malls, that meant they were in big trouble when malls started to decline. You know, as e-commerce was coming, Amazon was coming, Walmart and Target were expanding their breadth, malls started to struggle. And with that, so did RadioShack's locations in those places. The idea of people having kind of impetus and spontaneous buys inside of a RadioShack, that wasn't happening if they weren't going into a mall.
But wait, it gets worse for the chain because we haven't even talked about Amazon yet. And early in the 2000s, Amazon decided that they wanted to own the electronics and electronics accessories business. And if you're RadioShack, your best business is not selling the devices themselves. It's selling somebody a $20 HDMI cable that you paid $2 from China to get. And guess who wanted that business? Well, Amazon did. And they went hard after the accessories market. They started to sell cell phone coverages, HDMI cables, and all that kind of stuff. Uh, and customers started to notice. Uh, when Amazon brought in themselves, all their suppliers, and the third-party suppliers who were suddenly selling on their marketplace, you had a situation where RadioShack might be selling a $30 HDMI cable, and Amazon was selling the same cable for three bucks. It just wasn't tenable for our friends at RadioShack.
And so fast forward to the early 2010s and the business model that's at its core of RadioShack had totally eroded. The parts gone, accessories gone, electronics themselves gone. Like people weren't coming into the stores anymore because frankly, they just had better options. The only reason that was still bringing them in until then was the cell phone market. But that started to change as well and for the worse.
And remember this whole cell phone trend where RadioShack did well because of their real estate footprint, that happened because the carriers were desperate for market share. They were paying for new signups. What they weren't paying very well for was renewals and additional stuff. And eventually, the people that were going to have a cell phone and get one, the market started to get saturated and there just weren't that many people doing new signups and paying RadioShack $6, $7, $800, $1,000 per signup. And the second thing that happened was the cell phone carriers got tired of paying so much money to third-party signups like RadioShack. So they started to build out their own stores with the explicit target of going after the highest paying and best customers. And once that happened, when AT&T by the late 2000s had nearly 3,000 branded stores saying AT&T, and we're not even counting Sprint, T-Mobile, and the other guys. Once that started happening and they started to carve out the very best customers, suddenly all that RadioShack had left was scraps: the people doing pay-per-minute and folks that just weren't that good of customers.
And so by 2011, something happened to RadioShack, which was it made its very last profit. In those years, the stores turned unprofitable and they stopped making money for good. And in 2015, the chain filed for bankruptcy the first time and then again, it was bailed out by a private equity fund and then it basically filed bankruptcy again in 2017. It limped around, passed between multiple owners until eventually in 2020 it was bought by an investor group led by internet personality Tai Lopez. And the vision from Tai and his investor group was that they were going to use the brand to do e-commerce and rebirth it and have hype and all that kind of stuff around it. Uh, that didn't really materialize, but they did use the RadioShack brand, uh, at the height of the crypto boom to release a crypto token, dollar sign radio.
But in the end, all of the hype in the world didn't change the fact that the world had moved on and RadioShack had missed its opportunities to live on and still be a great brand. And if you look back into the '90s and 2000s, uh, it's likely that RadioShack could have made some changes and survived. You could have seen them get into the repair business like iFixit, get in the superstore business like Best Buy. But ultimately, when the guys like Charles Tandy and some of the early managers who were there to create the original chain had moved on, there just wasn't the talent to see what was coming in the future and make the hard changes that needed to be made.
So there's a lot of lessons from this story. For me, the biggest one is when disruption comes for your business, whether that's technological or governmental or societal, you tend to have a couple of windows to address those things and pivot your business appropriately. And if you don't, your fate will be sealed. And in this case, RadioShack saw it for a while and then missed it and ended up as a crypto token. Kind of sad in the grand scheme of things. I remember going to these stores when I was a kid. It was pretty great.
Oh, and I forgot to tell you, why was there a RadioShack out here in Floresville, Texas, nearly 50 minutes from my house? Well, this one here in Floresville is an old furniture store. It appears to be owned by a family, and they are part of the crowd of small stores in small towns like this that are RadioShack licensees. They buy some of the products, they stock them, and if somebody way out here needs an HDMI cable or a phone or something like that or an antenna, they can come into the furniture store where there's a little aisle of what looks like part of an old RadioShack, but definitely isn't the same as the ones from years ago.
All right, so that's the story of RadioShack. What do you think? Could they have avoided this misfortune? What is your best memory of the chain? What is your worst memory of the chain? And, uh, are you sad that they're not here anymore? Let me know in the comments below. I try to read them all.