Best Buy and RadioShack, headed for marriage?
The New York Post is reporting the possibility that RadioShack is on the market with a price tag close to $3 billion,
Wall Street and the financial markets are going bonkers at the prospect of RadioShack being up for sale. "The Shack" hasn't officially hung out a "for sale" sign, but the possibility isn't farfetched and speculation about a buyer has led straight to Best Buy. Given it's the most powerful electronics chain today -- the only national specialty store remaining since Circuit City liquidated last year -- the speculation makes some sense. Or does it?
Not quite. Big retailers will often buy up competitors to speed up expansion. Adding hundreds or thousands of stores in one fell swoop. It seems like a great deal on paper. But in reality it often ends in disaster.
Sure a company acquires lots of stores and brand equity, but they also acquire all the problems that led to that brand being for sale in the first place. In this case, RadioShack has nearly 6,000 locations and 500 kiosks. Inevitably many will be vacated, moved or renovated, at great cost to the acquiring company. Operations have to be analyzed and centralized, also an expensive prospect. RadioShack has a fancy new headquarters in Ft. Worth, Texas it opened in 2005, that would have to be closed down and disposed of. Critical employees would have to be relocated (costly), and the rest laid off (retirement packages and unemployment benefits don't come cheap). This adds a hefty sum to the $3 billion price tag.
Best Buy has hopefully learned its lesson about acquisitions. In 2000, it bought Musicland and proceeded to destroy that chain in short order. Management at the time crowed about how Musicland's network of stores would give Best Buy a presence in smaller markets and urban locations, and its shared entertainment offerings were a nice "synergy" for Best Buy. Heck, Musicland was even located in the same place, Minneapolis.
This should all sound familiar to anyone seriously considering a merger of Best Buy and RadioShack. Lots of smaller stores in different markets? Check, RadioShack's got 6,000 of them. Similar, yet slightly differentiated product assortment? Sure, RadioShack sells parts and accessories that Best Buy doesn't bother with. But does Best Buy need the headache? I don't think so.
A better prospect is Systemax, the company that has purchased CompUSA and Circuit City. Systemax has been quietly polishing both brand names and has plans to resurrect Circuit City beyond its current online only operation. It may not have the cash ready, but private equity is has been sitting on the sidelines for two years now and has money to invest as retail emerges from the recession.
Should these merger rumors between Best Buy and RadioShack turn out to be true, consumers have a lot to worry about. Best Buy is already the biggest player in the electronics market and we can all benefit from more competition. Circuit City and CompUSA may be rising from the ashes, and hhgregg is expanding, but it's still a regional retailer. Sears, Target and Walmart are all expanding electronics offerings. Best Buy getting bigger isn't good news for anyone, not even Best Buy.