Radio Shack Goes Back To The GizmosStephanie Anderson Forest
Leonard H. Roberts thinks a lot of dads would like something racier than a necktie for Father's Day. A radar detector, for example. Roberts, president of Radio Shack, has a plan to land the electronics chain a piece of the business of getting such gifts to their recipients. Through a new program starting in June, shoppers will be able to go into a Radio Shack, order merchandise, and have the chain deliver it anywhere in the U.S., gift wrap and card included.
It's part of the 45-year-old former fast-food executive's strategy for putting some sizzle back into Tandy Corp.'s lackluster cash cow. "We think this will be a big program," Roberts says. The former CEO of Shoney's Inc. and Arby's Inc., who took the helm at Radio Shack last July, has a lot of plans to turn around the 6,700-store chain. He also wants to make Radio Shack the nation's No.1 consumer-electronics repair center.
Deliveries? Repairs? A lot is riding on Roberts' ideas. Radio Shack accounted for about 70% of Tandy's estimated $4.1 billion in revenue in 1993 and virtually all its $200 million in profits. Tandy needs Radio Shack to keep churning out profits to finance the high-profile new ventures--such as the Incredible Universe consumer-electronics chain and the Computer City SuperCenter chain--that it's pinning its future hopes on.
TEXAS HYPERBOLE. The new chains were central to the Fort Worth-based company's decision to bail out of the PC manufacturing business last year and focus on retailing. Tandy CEO John V. Roach wants to increase the number of Computer City stores from the current 40 to more than 150 by 1998 and expand the number of Incredible Universe stores from 4 to 50. Roach thinks the expansion could triple Tandy's revenues by the end of 1998. "We have the potential to be one of the most exciting growth companies of all time," Roach says in characteristic Texas hyperbole. Wall Street, which had been urging Tandy to get out of computer manufacturing, is buying in: Investors have pushed Tandy's stock price up to 50, from the mid-20s a year ago.
Roach says he is counting on Radio Shack to be his "most important profit producer" during the expansion. Problem is, Radio Shack's sales and profits have been flat for four years. Personal computers, the chain's growth business in the 1980s, have dwindled from 30% of sales in the mid-1980s to 14% today. Price wars have driven down gross margins in PCs from 40% to 15%. Analysts expect Radio Shack to report slightly better numbers for 1993, with a 2%-to-3% gain in sales at stores open a year or more. But that will be mostly because of a stabilization in computer sales. Hence the pressure to develop new revenue streams. "Computer City and Incredible Universe will be big cash consumers for a long time," says analyst Lise J. Buyer of T. Rowe Price Associates Inc. "That means Radio Shack will have to continue to throw off a lot of cash for a long time."
TRUCK STOPS. Enter Roberts. His strategy is to take Radio Shack for what it is: a network of small, ubiquitous, sometimes dowdy stores with a reputation as a resource for stereo wire and gadgets unavailable elsewhere. Roberts' plan is to use those points of difference--which often have been branded as weaknesses in this era of discount megastores--as low-investment entry points for new services. "The key is to reinforce those things the customer already loves about us," Roberts says.
Radio Shack already repairs its private-label goods and out-of-warranty brand-name items sold by other Tandy chains at 114 repair centers. But it has never given repairs a major marketing push, ceding the business to mom-and-pop shops. Under a service set to go into test markets in Georgia and Florida in March, consumers will be able to drop off out-of-warranty electronics products at Radio Shack stores and have them repaired by the chain, regardless of who made them. Roberts figures the chain's clout and brand name make repairs ripe for the taking.
In the stores, meanwhile, Roberts is emphasizing Radio Shack's core electronic products, parts, and accessories, such as phones, toys, antennas, and batteries. The chain will still carry upper-end equipment, quch as personal computers, TVs, and stereos, for customers who are intimidated by the megastores. But it will not promote those products heavily: The fierce price competition from discounters makes margins too slim. Radio Shack's core products--virtually all private label--are more lucrative, giving it gross margins of around 50%.
Roberts is also applying some fast-food tactics: He has launched a couponing blitz and a discount card for preferred customers. He has also entered some unconventional sales outlets, offering CB radios and cellular phones at Union 76 truck stops. And in May the chain will introduce its first ad campaign from an outside agency, Young & Rubicam Inc.
COUPON BLIZZARD. How much will it all yield? Roberts told analysts he thinks the repair business, now $70 million, could grow to $500 million in five years. He estimated the gift service, which plays on convenience, could be a $1 billion business. Those are highly ambitious targets. According to the Commerce Dept., consumers spent $3.8 billion in 1993 repairing audio and video equipment. Radio Shack has to snare more than 13% of that to hit its mark. Meantime, Shelby A. Fleck, an analyst at Morgan Stanley & Co., doubts the gift service will bring in new shoppers: "If customers are not already shopping at Radio Shack, it seems unlikely that they will now visit the stores because they can mail an item as a gift."
Radio Shack's 2,100 franchise dealers are hopeful but wary. Libby Bovent, in Hermiston, Ore., says she's glad to see "new blood." But the coupon blizzard cost her money. Bovent says couponing went up about 65% but resulted in less than a 1% increase in her sales. "Coupons don't work in retail like they work in fast food," she says.
Still, there's no question that Roberts is looking at the chain with a fresh eye. "He's really trying to take advantage of the national position of Radio Shack," says Carl Steidtmann, chief economist at Price Waterhouse's Management Horizons retail consulting group. Ultimately, the real test of Roberts' menu won't be just how well the new services do. It will be whether they bring more customers into the stores. If Roberts can pull that off, there may still be some kick left in Tandy's cash cow.
Leonard H. Roberts' turnaround strategy for Radio Shack:
ADVERTISING In May, will roll out new ads to reposition chain as provider of consumer-electronics services.
MERCHANDISE Will focus on product areas it dominates, such as electronic parts, accessories, specialty equipment, with less emphasis on big-ticket items, where margins are slim and competition fierce.
GIFT SERVICE Will launch new service that lets customers go to a store, buy Radio Shack merchandise, and have it sent anywhere in the U.S.
REPAIR SERVICE In March, will begin testing a service offering repairs of all types of consumer electronics, regardless of the brand or where the product was purchased.