A strong new focus on wireless gear is impressing cellular providers. Can it boost the chain's sales?
Long the humdrum home of extension cords, TV antennas, and battery-powered toy cars, RadioShack (RSH) has spruced up its image just in time for the holidays. It's making a big push into wireless products and has launched fresh ads featuring its new moniker, "The Shack."
Investors have noticed, pushing shares of the Fort Worth retailer up 60% so far this year. But CEO Julian C. Day, a native of Yorkshire, England, with a trim runner's build, will need all the stamina he can muster to win the battle for wireless customers.
While the Consumer Electronics Assn. expects Americans to spend an average of $222 on gadgets this season, about 8% more than last year, the competition for those dollars has become fierce. Best Buy (BBY) has launched a specialty store for wireless products called Best Buy Mobile. Wal-Mart Stores (WMT) is slashing prices there, too. The individual carriers, not to mention Apple (AAPL), also have their own stores.
A National iPhone Rollout Is Coming
Day says his strategy is already bringing results. "The new positioning is getting through to consumers," he says, while strolling through a store in New York's Manhattan Mall in mid-November. Kim Dixon, senior vice-president for consumer sales at Sprint (S), says sales of phones with Sprint coverage plans are up by double-digit percentages at RadioShack, adding that "we've been wowed by our performance there."
Day has also picked up T-Mobile USA, and Apple's iPhone is currently in 250 stores and slated for a national rollout next year. "People used to walk into the store, ask if we had the iPhone, and when I said no, they'd walk out," says a Manhattan store employee.
The new positioning was long overdue, analysts say. Day, 57, spent the previous three years on a cost-cutting rampage, closing nearly 500 stores. He even sold potted plants to employees (for $5 apiece), rather than use precious corporate dollars to maintain live ones. Revenue declined from more than $5 billion in 2005 to just $4.2billion last year. Same-store sales, a key barometer of a retailer's health, declined for three straight years at its 4,470 company-owned stores and 450 kiosks, located mostly inside Sam's Club warehouses, part of Wal-Mart. Now, Credit Suisse (CS) analyst Gary Balter believes wireless will grow from about a third of sales to half in 2010.
When Will Same-Store Sales Rebound?
Still, it's hard to ignore the threat from competitors. Best Buy is rapidly rolling out small, standalone mobile stores, with 68 of them already in place. Scott Moore, Best Buy Mobile's vice-president for marketing, says RadioShack can't offer the same level of customer support. But Day has beefed up employee training to bring workers up to speed on product features. "We are every bit ready to compete with Best Buy and Wal-Mart," he says.
As RadioShack pushes wireless front and center, old standbys like screwdriver sets and phone cords have been shunted to the back of The Shack—which isn't a new corporate name even though it's used in all the advertising. While it made sense to slice "Radio" from the name, the rebranding has not yet won over experts like Alan Wolf, senior editor of electronics industry publication TWICE. "It's ambiguous and, if you think about it, none too flattering," he says.
Day will ultimately be judged by his ability to lift same-store sales, which declined 2.9% in the third quarter. Wrapping up the store tour, Day refuses to predict when sales will grow again but says "it is a singular focus of mine."
With Chris Palmeri in Los Angeles