For almost a century RadioShack served electronics enthusiasts as an inexpensive way to buy the goods and parts they needed, from camera accessories and headphone jacks to battery testers and spare power cords for your iPhone.
When the company went bankrupt last year, the reaction was shock mingled with a sense of nostalgic sorrow. The media offered all kinds of answers to the mystery of what or who killed Radio Shack, from a bad business model and poor management at the top, to competition from internet suppliers who also killed Circuit City and almost did the same to Best Buy.
But in this case the real online perpetrator may be China, a serial predator who’s been claiming more victims than just Radio Shack. Even worse, Congress and our own U.S. Postal Service seem to be holding the murder weapon.
To get to the bottom of this mystery, we need to remember that Radio Shack’s most loyal customers were buyers of small electronics parts for DIY projects — whether they bought them in the store or from Radio Shack’s website.
Clue: That’s the same line of business that China e-commerce specializes in, with dozens of websites for small cheap goods — including electronics.
Now, everyone loves healthy competition. But Chinese e-commerce companies get a special break, thanks to the USPS and the global cartel that oversees all international shipping by government post, the Universal Postal Union — a United Nations agency.
The UPU sets international postal rates from country to country, i.e. what a country’s postal service charges to deliver a package within that country. That rate is based that nation’s state of economic development. Category 3 country Gabon, for example, gets a bigger price break on the postage for the packages it ships to Norway, than Norway gets shipping to Gabon — or to the United States, another Category 1 country. For reasons that defy logic, China, the world’s second-biggest economy, also sits in Category 3, alongside Botswana and Cuba — and Gabon.
This means someone in China can send a package across the Pacific to the U.S. and have the USPS deliver anywhere in the 48 states, often for less than an American has to pay to send the same package within the U.S. How did this affect Radio Shack? A quick comparison of its online catalog with those of its Chinese competitors provides fresh evidence of what’s happening — and not just to Radio Shack.
For example, a standard multimeter for measuring electric voltage sells from Radio Shack for $24.99. Go to Deal Extreme, a Chinese e-commerce company, and you can buy virtually the same multimeter for $15.82. Throw in Deal Extreme’s free shipping (since the terminal dues it pays are so low) versus the $5.95 Radio Shack has to tack on, and a multimeter from Deal Extreme costs you just $15.82, while Radio Shack charges $30.94 — more than double.
Of course, that lower price does reflect cheaper manufacturing costs in China. But take the example of a USB flash drive that sells for $11.99 on the Radio Shack website and almost the identical drive for only a dollar more ($12.99) at another Chinese website, DinoDirect. Yet thanks again to free shipping, DinDirect can sell its flash drive to a U.S. customer at $12.99, while U.S. shipping costs drive Radio Shack’s price up to $17.94.
The skewing of the e-commerce playing field doesn’t stop there. Take a soldering iron for electronics that actually costs less from Radio Shack than from the Chinese website DHGate: $14.99 versus $17.53. The discriminating customer, however, soon notices that with DHGate’s free shipping he will only pay $17.53 getting his device from China, instead of the $20.94 he’d have to pay Radio Shack when shipping inside the U.S. is added in.
Now, the Radio Shack customer doesn’t always pay shipping. For orders over $30 shipping is free, as well as for orders over 2 kilograms. But Radio Shack’s business model for staying in business depended on those 2-kg-or-less orders, the staple of their DYI electronics geek customer base. Those customers easily used their iPads to find websites that delivered the same for less. Thanks to the UPU’s convoluted rules, many if not all of those websites originate in China.
So did the UPU really kill Radio Shack? Certainly the circumstantial evidence suggests that allowing China to ship packages virtually for free within the U.S. gives its e-commerce customers an unfair advantage that goes far beyond Radio Shack to America’s entire online retail industry. Even Amazon, with its massive economies of scale, has raised its voice against this postal malpractice. Smaller businesses that make a living on eBay are even more vulnerable.
Leveling the e-commerce playing field has to start with reform of the UPU’s outdated rules and its skewed pricing system for international postal shipping. The UPU meets every four years to set prices — the next meeting is in Istanbul in late September. Reform should start by moving China up out of Category 3 to Category 2 or even 1, where it really belongs.
Then Congress needs to stop the USPS subsidizing Chinese e-commerce through misguided policies like ePacket, set up in 2010 to offer additional services to Chinese companies shipping small packages to the U.S. That’s dealt a devastating blow to U.S. eBay vendors — and since ePacket was extended in 2015 to Alibaba, the biggest of China’s e-commerce predators, future victims won’t just be eBay vendors. (The USPS, by the way, loses more than a dollar on every incoming ePacket shipment.)
Who killed Radio Shack isn’t a mystery at all. The real mystery is, when are the USPS, Congress and a new administration going to start pushing back on China’s predatory e-commerce practices — and the U.N. rules that support and subsidize it?