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CELLULAR SELLERS

RadioShack’s wireless technology strategy fuels dramatic growth

BY MAURA K. AMMENHEUSER

If you’ve ever wondered why every time you buy a battery from RadioShack, they try to sell you a cell phone, consider this: The company’s relatively recent focus on wireless technology has done marvels for its turnaround.

The relationships the company has forged with wireless operators will spur the opening of hundreds of RadioShack-operated kiosks in malls and stores, the chain says. Furthermore, last year RadioShack created a retail services division to provide selling power to technology companies peddling gadgets beyond cell phones.

RadioShack began operating in-mall kiosks for Sprint last year, and by mid-February it had 53 of them.

“Our intent in 2005 through 2007 with Sprint alone is to have 500 locations,” said Andy Zeinfeld, president of the retail services division. “And we’re not done yet.”

These moves are part of an ongoing RadioShack upturn that follows a bumpy period. Like many retailers, the Fort Worth, Texas-based electronics chain got hurt in the aftermath of the dot-com crash and the Sept. 11 attacks. But RadioShack’s outdated store design played a part too. Total sales dropped to $4.5 billion in 2002, from $4.7 billion for each of the two years preceding; 2002 same-store sales, meanwhile, fell 1 percent, versus a rise of 1 percent the year before and growth of 11 percent in 2000.

Things started looking up in 2003, though, and even more so last year, when total sales rose 4 percent year-on-year, to $4.8 billion, while same-store sales climbed 3 percent. For much of this, RadioShack can thank the cell phone, though a better merchandise mix and improved store design also had something to do with it.

An explosion foreseen
It was CEO Leonard H. Roberts’ prescience concerning the impending cell phone explosion that helped improve the company’s fortunes, says Kay Jackson, RadioShack’s senior public relations director. Roberts created a cell phone store-within-a-store in the late 1990s with Sprint and then with other carriers, says Jackson, who credits the idea with double-digit sales gains.

Today cell phones and other wireless goods account for 35 percent of the company’s sales. It might seem that everyone in the U.S. already has a cell phone, but the market is, at most, about 70 percent saturated, says Ross Rubin, director of industry analysis at NPD Group, a Port Washington, N.Y., sales and marketing research firm.

RadioShack got on the wireless bandwagon early, so it became a must-have retail partner for the cell phone companies, says Richard Weinhart, an analyst at Chicago-based investment bank Harris Nesbitt. In addition, RadioShack’s omnipresence (nearly 7,000 stores throughout the U.S.) makes it a convenient place for consumers to buy and service their phones.

“It takes some knowledge and hand-holding” to get a customer comfortably set up with cell service, Weinhart says, and RadioShack has had plenty of experience determining the best customer-service methods. The chain is currently retraining staffers to improve service even further for cell phone customers.

RadioShack also intends to profit from new technologies that piggyback on cell phones: audio, video, digital imaging and more. “All these things are converging on a wireless phone,” Jackson said. “We make sure the customer has all the accessories he or she will need to get the most of their phone. These accessories have rich gross margin for us.”

In October RadioShack took over cell phone kiosks in Sam’s Club warehouse stores; by mid-February it was running 546 of them. These kiosks sell phones and services for a variety of carriers. According to Doug Fleener, president and managing partner of Dynamic Experiences Group, a Lexington, Mass., retail consulting firm, RadioShack has the expertise for such an undertaking. “Their goal now is to maximize all the technology out there and demystify it,” he said.

Tech tool retool
During a fourth-quarter conference call in January, RadioShack executives predicted they’d have 1,100 new kiosks within three years. Each kiosk will have about eight to 10 times the productivity per square foot of a traditional RadioShack store, they said.

The idea is aimed at more than just telecom products; RadioShack is also seeking to help tech companies develop new products and, eventually, to share in those revenues. “The business model is designed to be flexible, not just [focused on] wireless,” Zeinfeld said.

RadioShack wants to encourage early adoption of new technology through partnerships with vendors. The company owns part of the intellectual property rights to some recharging devices it developed with Scottsdale, Ariz.-based Mobility Electronics, for example.

That’s a smart strategy, says Daniel Hurwitz, executive vice president of Developers Diversified Realty Corp., which has 90 RadioShacks in its portfolio. “They are technology-based, and they have to continually reinvent themselves as technology dictates,” he said.

Meanwhile, RadioShack has upgraded some stores, based on a prototype rolled out in Jacksonville, Fla., in late 2002. The design features wider aisles, about 25 percent more space, brighter colors and better organized, more accessible product displays. By mid-February about 600 U.S. stores sported the new look. Eventually, all new and remodeled units will adopt it or some future version, says Zeinfeld.

Landlords are pleased with the new design. “It’s very crisp,” said Hurwitz. “It’s very customer-friendly. It has a technological edge.”

Helen Muench-Ciesla, CSM, general manager of the 1.5 million-square-foot Regency Square Mall, agrees. “It has lots of ease-of-access,” she said. “I feel like there’s an improvement in their customer service. Maybe it’s because things are easier to find.” (General Growth Properties owns Regency Square, which was among the 20 Jacksonville sites involved in the original rollout.)

Tweaking the geek
The retailer is also turning attention to its merchandise mix. Famous for being a tech-geek destination, the chain is now de-emphasizing diodes, transistors and the like in favor of higher-margin merchandise, such as digital cameras and Apple’s iPods.

“We’re losing these older, established customers who use this as a hobby shop,” said David J. Edmondson, RadioShack’s president and COO, during the conference call. But that, he noted, is a trade-off the company is willing to make. (Edmondson is set to become CEO next month.)

Weinhart agrees that it is a good move. “They can’t afford to stay just with that business and ignore the rest,” he said. RadioShack will instead channel the “parts” sales through select stores and the Internet, he says.

The Consumer Electronics Association, Arlington, Va., predicts that industry retail sales will reach roughly $156 billion this year, about 10 percent higher than last year. But plenty of companies share the market. Best Buy, the top consumer electronics chain, posted $20.8 billion in sales by 2003, the most recent data available from trade publication TWICE (This Week in Consumer Electronics). Wal-Mart was second with $15.6 billion, and Circuit City was third with $9.7 billion. RadioShack came in sixth, at $4.6 billion.

“To a certain degree, everyone is a competitor,” Zeinfeld said. “I believe our strategy is different. … We have so many contact points with the consumers.” And RadioShack offers service that Wal-Mart does not, he added.

But much work lies ahead. Michael Baker, a consumer electronics retail analyst at Deutsche Bank, predicts that RadioShack’s revenues will hit $5 billion this year but calls the chain’s reliance on wireless a risk nonetheless. He points out that the category’s fourth-quarter sales gains were the smallest in five quarters.

Fleener gripes more about the store atmosphere. “For all the fun stuff they sell, it’s not really a fun store,” he said, noting that the stores could use some hip music.

But Zeinfeld does not see those as being the company’s most pressing problems. “We have a lot of things going on, so focusing and prioritizing” will be the big challenge, he said.

In any case, though, RadioShack executives express continued confidence in the wireless market going forward. Indeed, as Edmondson said during the conference call in January, cell phones are “destined to become something everyone wants to attach their products to.”