Thinking Big Very Big At Tandy

When Tandy Corp. was searching for products to supplement the electronic gadgets its Radio Shack stores sold in the mid-1970s, Radio Shack executive John V. Roach persuaded then-CEO Charles D. Tandy to build personal computers. Only the second major company to offer a PC, Tandy turned out the hugely popular TRS-80 and Roach became a hero. Fifteen years later, Tandy's share of the PC market is under 5%, Radio Shack sales are in a slump, and Roach, now CEO himself, must come up with another daring stroke to end a three-year profit slide. His call to arms? Back to electronics retailing!

"The computer was a great thing that happened to Tandy. But it was also the product that ate the company," says Matthew D. Upchurch, grandson of founder Charles Tandy, whose family is Tandy's largest noninstitutional shareholder. "There was so much focus put on computer manufacturing that Tandy lost sight of its roots: that it's a retailer." Or as Roach puts it: "First and foremost, we're a retailer."

The company is not abandoning Tandy brand computers, which accounted for 24% of fiscal 1991's $4.67 billion in revenues. But it is treating them as just one category in an array of consumer electronics. The new PC strategy emphasizes Tandy's role as a retailer as well as a manufacturer, and that means moving the Tandy machines into new distribution channels where, for the first time, they must compete with other brands. To kick off the new strategy Roach is opening Computer City SuperCenters, a chain of superstores with huge PC selections and cut-rate prices.

Pioneered by rivals CompUSA and Micro Center, superstores are the fastest-growing segment of PC retailing. Roach plans to open over 40 SuperCenters by 1994 and has opened 13 in the past eight months. He says most of these are already profitable and figures the chain could generate $1 billion in sales within five years. "If they continue to roll out stores at the rate they are now, that is certainly doable," says Eugene Glazer of Dean Witter Reynolds Inc.

MINI-MALL EXPOSURE. Roach isn't stopping at mere superstores. This fall, Tandy plans to unveil the mother of all electronics emporiums: Incredible Universe, a mini-mall the size of three football fields complete with karaoke contests, child care facilities, restaurants, and paper recycling centers. Customers can choose from 10 computer brands besides Tandy, 300 kinds of TV sets, 90 models of videocassette recorders, and 40,000 audio and video titles. "If it's not in Incredible Universe, it doesn't exist," Roach boasts. The first two will open in Arlington, Tex., and near Portland, Ore.

Products galore won't assure success, however. Incredible Universe must move incredible volume--some $100 million annually per store--to turn a profit, estimates analyst Walter F. Loeb of Loeb Associates Inc. To pull it off, Tandy must offer the lowest prices. That means keeping a relentless eye on costs. Purchasing clout and economies of scale will help. Roach is also counting on new concepts in inventory controls. But rivals are skeptical. "We've done the financial modeling on it. I don't see any way to get the costs down" enough to price competitively, says Richard M. Schulze, head of the Best Buy Co. superstores.

Tandy can ill afford money-losing ventures at this point. Same-store sales at its McDuff discount chain, purchased in 1985, were off 10% in Tandy's fiscal third quarter. And analysts expect the company as a whole to report a 3.5% profit drop for fiscal 1992, ended June 30, to $188.9 million on flat sales of $4.6 billion. That will make three consecutive years of lower earnings, down from $323.5 million in 1989 (chart). The decline corresponds with a slide in both Radio Shack sales and Tandy's PC market share. The stock has been trading recently at around 24, down from a record high of 64 1/2 in mid-1983.

To finance Tandy's new ventures, Roach must continue to pay close attention to Radio Shack, its most reliable earner, which accounts for more than 60% of total revenues and the bulk of profits. But the chain has its own problems. The country is blanketed with 7,000 Radio Shacks, leaving little room to expand, and the stores suffer from an image as cluttered hobbyists' shops.

Roach continuously tinkers with the Radio Shack format in an effort to reboot the business. In the 1980s, for example, he broke out a separate set of Radio Shack computer centers, then closed them last year. Now he's refocusing marketing efforts on core products, such as batteries and computer cables. By making battery displays more visible to the customer in January, Radio Shack hiked sales of these high-margin products by 20% over 1991. Thanks to such tinkering, the chain has had six consecutive months of same-store sales gains.

PC ROMANCE. Roach, 53, must still come up with a winning strategy for his baby, the PC business. Tandy never cracked the important corporate market, and in the home market, once its stronghold, Tandy is losing out to such low-priced brands as Packard Bell and Gateway 2000. Tandy "began to think of itself as a world technology genius" in the 1980s, says analyst Otis Bradley of Gilford Securities Inc., but the company rarely led in either technology or price. As a result, Tandy's share of the U.S. PC market eroded to 4.62% in 1991 from 7.51% in 1986, according to Dataquest Inc.

Roach concedes that the PC pulled the company off track in the 1980s. It was such a rapid-growth vehicle for Tandy, he says, that "it was difficult to focus on many other things." Still, he insists it was the right direction at the time, and his romance with computers continues.

Roach is betting Tandy's PC future on pen-based computers, courtesy of innovative GRiD Systems Corp., the Silicon Valley laptop-computer maker Tandy bought in 1988. GRiD was the first company to sell a pen-based notebook computer that recognizes printed handwriting, and recently introduced a wristband pen-based computer. Tandy is also emphasizing multimedia computing and this fall is expected to offer enhanced multimedia systems.

Both multimedia and pen-based computers are targeted for the consumer market, and Tandy is counting on consumers walking into an Incredible Universe or a Computer City to buy them. Which is precisely why Tandy's retailing strategy is also its PC strategy. Now, Roach has to lure customers to both stores and PCs.