How Big Government Bankrupted RadioShack

As a former sales associate for RadioShack, I was very saddened when I heard the news that the company was filing for bankruptcy. Being a lifelong connoisseur of technology, RadioShack has in my mind always been a shining beacon of innovation, intelligence, and expertise. It was always the one-stop-shop for DIY projects, cool Christmas toys such as remote control cars, as well as other funky gadgets. Their slide from the go-to local electronics store to “RadioShack is still around?” has been an upsetting departure from their once burgeoning grandeur.

It is for the reasons aforementioned that RadioShack lost their edge. In order to survive and remain competitive in the market, one has to innovate and adapt to growing consumer demands. Our key item of sale at RadioShack was cell phones. If we weren’t selling phones, we weren’t making money. RadioShack price matches with other stores, thereby offering the lowest prices guaranteed on cell phones. Yet for some odd reason, RadioShack never advertised this. They would waste money on commercials to advertise batteries (which you can get for a fraction of the price at the grocery store) instead of promoting their awesome cell phone deals. While I was still working for the company, I had to make up for this by actively making our customers aware of our great deals and encouraging them to tell their family and friends.

However this alone shouldn’t be reason enough for a Fortune 500 company worth $3 billion to file for bankruptcy. In 2013, RadioShack unveiled their new concept store in Fort Worth, Texas, charting a new beginning for the company. The revamped store gave it a retro, customer-friendly appearance, with the emphasis finally being placed on their high-end gadgets. Their new catch phrase became “RadioShack: Let’s Play”, encouraging customers to come try out the headphones, speakers, cell phones, and tablets sold. A number of prototype concept stores began opening up in New York, New Jersey, and Texas.

I was still at RadioShack while this nationwide refurbishment was occurring, and a number of changes were swiftly ushered in. The stores, which previously all had red walls, were painted white to model the concept stores. In addition, our uniforms went from red polo shirts and black slacks to a more casual style in a t-shirt and jeans. During our store reset in early 2014, a bunch of demos of our products were put onto the floor, again mimicking the concept stores. We also began promoting a new program called It Happens, where for just a few extra bucks on each item purchased, customers could receive a warranty on their products, allowing them to receive a brand new product in-store should the item suffer any damages.

Yet shortly after these changes began, RadioShack began closing down thousands of stores. It became apparent that the company could no longer afford to stay in business, and it was only a matter of time until they would fold. Their stock prices plummeted to an abysmal $2 a share and today sit at $0.15 a share. It really came as no shock to anyone when RadioShack filed for Chapter 11 bankruptcy on February 5th.

RadioShack has not turned a profit since 2011. To say they were struggling would be an understatement. In order for a struggling company or individual to survive, it must minimize its costs as much as they can. However big government does not make this possible. The free market is very forgiving, but unfortunately the invisible hand isn’t able to play its part when government is involved.

The majority of RadioShack’s stores reside in California, Texas, New York, Florida, Pennsylvania, and New Jersey. The minimum wages in these states respectively are $9 an hour, $7.25 an hour, $8.75 an hour, $8.05, $7.25, and $8.38 an hour. For a company struggling to stay in business, such a magnanimous cost of labor is severely detrimental. Everyone I knew at RadioShack, including myself, was not working there to make a living. We were all young, college-aged kids looking to gain work experience and make some side cash to be able to go out. Bureau of Labor statistics will back this up, as only 1.1% of all workers in the United States over the age of 25 even earn the minimum wage. As Jeffrey Dorfman aptly puts it in his 2014 article Almost Everything You Have Been Told About The Minimum Wage Is False on Forbes.com, “Minimum wage earners are not a uniformly poor and struggling group; many are teenagers from middle class families and many more are sharing the burden of providing for their families, not carrying the load all by themselves.”

Earning such a high wage in my time at RadioShack was not necessary (and also artificial, as increases in minimum wage decrease my purchasing power). Considering I never had an everyday job before up until that point, I would have worked for table scraps. I was hungry for work experience, and since price floors create inflation and reduce employment, my opportunities were limited. I doubt the 5.8 million unemployed youth care if they are earning $9 an hour either. Any wage is better than no wage. It’s worth mentioning that we also earned 2% commission from all of our sales, incentivizing us to sell as much as possible. Base line jobs are not meant to be careers, but are instead springboards to even greater opportunities. Our politicians ought to be focusing on how to assure as many six figure jobs as possible, but are instead preoccupied creating a “living wage” for the 1.1% of folks who make careers out of entry level positions.

So considering the majority of their employees are not even reliant on their salaries as a means of living, it is incomprehensible why RadioShack should be forced by government to pay their employees a minimum wage when they are struggling to cut costs. Common sense, basic economic principles teach us that if companies cannot cut costs, prices will inevitably rise, and this just so happened to be the case with RadioShack. Aside from cell phones, finding a good deal in RadioShack is as rare as seeing the New York Mets in the playoffs. And as a result, consumers will find alternative means of purchasing the same goods elsewhere at a lower cost, thus driving down RadioShack’s revenues even further and ensuring an inevitable bankruptcy.

Mandating a minimum wage for RadioShack’s employees is especially damaging on slow days, which were namely Monday through Thursday. If a store in California, where minimum wage is $9, is open for 12 hours and only manages to sell $500 worth of goods while six employees work seven-hour shifts each, do the math and their labor for the day will cost RadioShack $378. Factor in the manager’s more heavily financed fixed income, the electric, plumbing and gas bills, as well as insurance costs and RadioShack is losing money just by being open. This just so happens to be the average day at RadioShack. To stay in business, they need to cut costs where they can. Electric, gas, etc. prices are non-negotiable and government makes it illegal to negotiate a wage any lower than their price floor, so where exactly are they supposed to make cuts? They can attempt to cutback their workforce and hire less employees, but then more people are unemployed and their current employees will be overworked.

With government intervening into free trade as much as they do, the fact that RadioShack began innovating in 2013 was irrelevant since they were compiling debt since 2011. In a freer economy, this may not have been as much of an issue. If they were able to increase sales while maintaining low costs for labor, a rebound would have been more than likely. Unfortunately government mandated wages ensured a rebound was not possible and prevented us from seeing the direction CEO Joe Magnacca planned on taking the company. The excitement of RadioShack’s recent overhaul was short-lived, and thanks to big government telling us how to run our businesses, we will forever be robbed of the friendly neighborhood electronics store that had everything we would ever need to make our gadgets run flawlessly. By forcibly giving low-level workers artificial raises, government has in turn made it so 27,500 people will soon be heading to the unemployment line. I guess from now on we’ll have to take the long, inconvenient drive to our nearest Best Buy when our tech concerns arise. But then again, they have not been doing so hot in recent years, so perhaps they will be the next tech giant to fall victim to the hands of big government.

Update: This isn’t even including the detriments caused by excessive taxation. The United States continues to have the highest corporate tax rate in the world, at 40%. Attempting to regain a profit is a mighty struggle for corporations in freefall like RadioShack, as nearly half of their revenue is turned over to the federal government.