Its marketing is as old-fashioned as its name, its image hardly techno hip. So how does Radio Shack, the prime money-tree of Tandy Corp. (TAN), manage to fight off outfits like Circuit City and Best Buy and remain a player in the age of superstores, high-tech consumer gadgetry, and ecommerce?
So far, the company has done it by being everywhere -- there are 6,900 Radio Shack stores in the United States compared to the combined total of just over 3,000 for Wal-Mart, Circuit City, Best Buy, and CompUSA. And Radio Shack's ubiquity is matched by the range of tech products it sells, including many that none of its competitors bother with. Pushing a high-margin inventory that ranges from batteries for garage-door openers to crystal-radio kits, the company amassed US$3.2 billion in sales in its most recent fiscal year.
But the company is trying to move in new directions, too, in a series of alliances with tech partners.
The latest deal was this week's announcement that Radio Shack will be the primary retail channel for Sprint's (FON) new Integrated On-Demand Network -- a service that promises to bring high-speed voice and data service to the mass consumer market. Radio Shack already hosts more than 6,000 Sprint Stores -- retail outlets for the Number Three long-distance carriers' personal communications services -- in its far-flung retail chain.
And this summer the stores' floor space will get even more crowded as the company opens a "store-within-a-store" campaign to push computers from a new partner, Compaq (CPQ).
The new thrust is leading some to wonder if the lights are all on in the Shack.
"In general they've found their experience in high-competition categories very problematic if not catastrophic," said Ursula H. Moran, a specialty retail analyst at New York-based investment research firm Sanford C. Bernstein. As examples, she pointed to the shuttering of Tandy Corp.'s Incredible Universe computer stores early last year, as well as the continued troubles of its Computer City outlets.
"The wireless telephony and personal-computer categories are highly competitive for retailers," she said. "And that suggests to me that Radio Shack will find it tougher going in those categories."
"Radio Shack is very successful selling wires and fuses and obscure batteries, because they're the only game in town generally," said Moran, who noted that Radio Shack continues to aim for 50 percent gross margins in an industry that generally is lucky to see 20 percent margins on high-ticket items.
Moran said the company will need to change its expectations in order to compete with the scourge of strip-mall cell-phone specialists and mail-order computer warehouses.
"It will be challenging if not impossible for Radio Shack to keep the margins in those categories with other competitors digging down deep," she said.
"The question is whether Radio Shack is really viewed as a place to go and buy a PC, especially when it only stocks one line of computers," said Charles Smulders, senior industry analyst for distribution channels at Dataquest. "The model of selling PCs in terms of margins is vastly different than the rest of Radio Shack's stock," he said. "There's a definite benefit for [Compaq] getting its PCs in consumers' line of sight. But for Radio Shack, there are definite challenges in terms of the way they're used to doing business."
The company admits that it won't dominate new markets the way it does now in the business of batteries and fuses.
"In the computer business, everybody talks about the low margins," said Rick Borinstein, Radio Shack's senior vice president of merchandising. "It is very competitive."
But he suggests the company's experience as a computer retailer and a sharp focus in its deal with Compaq -- offering machines designed for the home and family -- promises success.
"We've been in the computer business for many years, and we compete in it, but we're not trying to be everybody's solution," said Borinstein.
At least one analyst sees Radio Shack moving in the right direction. Compaq, with its consumer focus, will be a better fit for its customers than IBM, with whom Radio Shack had an exclusive relationship until February of this year.
"IBM is the Oldsmobile of consumer PCs, and Compaq is the Toyota," said Peter Caruso, first vice president of Merrill Lynch. "IBM is always a dollar short and a day behind in terms of the consumer marketplace. The problem in the past wasn't Radio Shack, it was IBM."
In battling with superstores, discount clubs, and mail-order outlets, Borinstein said, Radio Shack will offer an intimate knowledge of its products that the competition can't match.
"We look to demystify tech for the general public," he said. "We're positioning ourselves as a solution-based store concept with trustworthy sales associates who will take as much time on a $300 sale as a $3 sale. We believe that, for our customers, the product is only half the story."
