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RadioShack Will Learn the Hard Way What J.C. Penney Knows

Stocks in this article: JCP RSH

NEW YORK (TheStreet) -- With great fanfare and at great cost, RadioShack  (RSH) recently let the world know through Super Bowl advertising that it would be remodeling its stores in an effort to boost sales. On Jan. 25, 2012, Ron Johnson, then-chief executive officer of J.C. Penney (JCP), announced the retailer would be  reconfiguring its stores to boost sales. On that day, the stock closed at $34.27. There was great hope this would work as Johnson had headed up the retail operations of Apple  (AAPL).

The results to date: Johnson was fired last April, he was then selected as the one of the worst chief executive officers of 2013 by Professor Sydney Finkelstein of Dartmouth, and the stock of J.C. Penney is now trading around $6.15 a share with a short float of close to 40% (5% is considered to be troubling).

Don't expect any different results than those from J.C. Penney. Just like J.C. Penney, there has been an increase afterwards in RadioShack's stock price. There are many reasons to use this rise to sell if long on RadioShack and short, if possible (there is already a short float of more than 40% for RadioShack, so good luck borrowing some shares to short).

In May 2007, RadioShack was trading around $35.00 a share.

Now it is about $2.65 (after the recent rise). There have been no shortage of attempts to turn around the beleaguered consumer electronics retailer. Over the last two years, there has been an emphasis on smart phones to improve earnings.According to Finviz, earnings-per-share growth is off by 22.90% over the past five years. This year, earnings-per-share growth is down in the triple digits. The return-on-equity for RadioShack is a negative 52.80%, so clearly the smart phone strategy did not work.

The management of RadioShack is now reported to be closing 500 stores.

That will take the number of stores to around 3800. In an interview in November, RadioShack Chief Executive Officer Joe Magnacca stated, "I think we're a 4,000-plus network. My job is to make sure that we've got the market covered." His main job now is to take the number of stores well beneath that total.

There is no reason to expect that to work better for RadioShack than it has for J.C. Penney.

The same competitive forces in the retail sector, Apple, Amazon  (AMZN), and Wal-Mart  (WMT), are not going anywhere. If anything, each is getting stronger. Amazon is spending billions to build warehouses across the country to expedite delivery. Tablets are a top layaway item for holidays for Wal-Mart. Consumer electronic sales should only increase for these two retail giants. For Apple, sales soared for the App Store over the last holiday season.

Unlike Radio Shack, Amazon, Apple, and Wal-Mart are profitable with earnings and sales increasing.

RadioShack is caught up in a "perfect storm" of adverse market conditions. It is confronted by the toughest competitors in the market in a very competitive product line. It has no other goods such as groceries to lure customers to the store, as does Wal-Mart. Nothing in a RadioShack store even compares to the "Genius Bar" experience at an Apple store. Amazon is unrivaled for online sales. Expending precious capital to reconfigure stores is likely to have the same results as those for J.C.Penney.

At the time of publication the author held no positions in any of the stocks mentioned.

This article represents the opinion of a contributor and not necessarily that of TheStreet or its editorial staff.

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