Two days ago, Bloomberg news announced that Amazon has considered using RadioShack stores as potential pickup and drop-off centers for online customers. RadioShack has been struggling financially for quite some time. An article in Bloomberg BusinessWeek outlined the company’s shortcomings as consumer trends continue to shift. In the early 2000’s RadioShack negotiated deals with wireless carriers and began pushing cell-phone contracts on customers. However, poor employee training and a surge in wireless carrier stores impacted foot traffic for RadioShack negatively. Meanwhile, hefty at-scale ecommerce investments by Amazon deterred the company from investing online. Joseph Magnacca, former Walgreen’s executive, became CEO in February 2013. Magnacca attempted to reposition the company to appeal to “do-it-yourselfers”– the original customer target. However, lack of store associate training for the “Do it Together” DIY program and increasing competition from lower-price retailers contributed to the stock’s stalemate on the NYSE; it is no longer trading and the company is currently set to file for bankruptcy.
Scott Galloway predicted in a DLD Talk in Munich a few weeks ago that Amazon would make a strategic investment in brick-and-mortar, possibly buying RadioShack stores, gas stations or U.S. Post office locations. Galloway called Amazon’s shipping costs the company’s “Achilles Heel.” Amazon spent almost $7 billion on shipping costs in 2013 and shipping costs increased more than 40% in the first nine-months of 2014. Though overall online sales continue to increase, only 6.6% of all retail sales take place online. Meanwhile, some pure play retailers that open retail stores are seeing substantial return on investment; Warby Parker sells an average of $3,000 per square foot, higher than the majority of retailers except Apple. Turning RadioShack stores into mini flexible warehouses will cut shipping costs and increase total retail sales.
Amazon’s encroachment into physical stores would also be an offensive tactic, adding pressure on Big Box players who appeal to customers due to their wider array of return and shipping options–and occasionally faster delivery times. L2’s Digital IQ Index: Big Box 2014 study highlighted the growing competition from Big Box players in the digital space. Retailers that began investing heavily in inventory management systems and omnichannel retail over five years ago are seeing substantial increases in online sales.
In the first quarter of last year, numerous Big Box retailers had sales growth higher than Amazon’s. Dick’s Sporting Goods saw online sales jump 65%; Costco’s increased 48%, and Macy’s and Wal-Mart saw a 31% and 30% increase in the category, respectively. If Amazon succeeds with cherry-picking store locations out of RadioShack’s widespread portfolio it would be one way for Amazon to reduce operating margin pressure as it strives to suck the oxygen out of the air for retailers while staying afloat in an increasingly omnichannel environment.