RadioShack, Blockbuster Ink In-Store Deal

By Alan Wolf -- TWICE, 3/12/2001

NEW YORK -In a twist on its own store-within-a-store strategy, RadioShack will open upward of 5,000 in-store shops throughout the Blockbuster video rental chain over the next two years.

The shops will range in size from kiosks to 600-square-foot sections and will offer a wide range of RadioShack's best-selling SKUs and services, including consumer electronics, telephony services, high-speed Internet access, emerging connectivity technologies and "fun gadgets," the retailers said.

The assortment is expected to encompass RadioShack's full array of brand offerings, including Compaq, MSN, RCA and Sprint, although discussions between the merchant and its strategic partners are pending.

In addition, all DirecTV kiosks, which were introduced to Blockbuster stores nationwide last summer, will be integrated into the RadioShack shops.

The mini-stores will generally be located toward the front of Blockbuster's units, within what Nigel Travis, president of the chain's worldwide stores division, described as excess and underutilized space. The shops, manned by RadioShack employees, will provide separate checkout service and will be heralded by outside signage.

RadioShack will pay Blockbuster a license fee for each location, and both companies will share in the projected $1 billion annual cash flow and "other economic benefits" of the 10-year pact, including cost savings generated by "managing vendor and service relationships," the partners said.

The first wave of shops will hit 130 Blockbuster stores by this summer in Las Vegas, Norfolk, Va., Austin, Texas and Tulsa, Okla. A systemwide Phase II rollout will begin in 2002 and is expected to be completed within 12 months.

"We would like to do it as fast as possible," explained Travis, who is counting on RadioShack's track record of timely, chainwide concept-shop rollouts.

Dave Edmondson, president/chief operating officer of RadioShack, told TWICE that the deal will provide increased consumer contact thanks to the greater frequency with which shoppers visit the video chain, and to its larger proportion of female and teenage customers. "It gives us exposure to a whole new audience of women and young people," he said.

Edmondson added that the in-store shops, which would be built by RadioShack-owned signage and fixturing companies, had a trial run within the retailer's dealer network, where the so-called RadioShack Select stores helped hike sales growth by 40-50 percent. He also downplayed the prospect of the kiosks cannibalizing sales at traditional RadioShack stores, citing the "huge incremental growth" realized by snack chains Dunkin Donuts and PizzaHut when they took their franchises off-site.

Travis told TWICE that the deal, which has been in the works since December, will also afford a range of in-store marketing and cross-promotional opportunities, including the possible sale of Blockbuster-branded gift cards and movies within RadioShack stores. Added Edmondson, "The possibilities are just enormous."

Retail analyst Aram Rubinson of UBS Warburg, who pegged the ploy's likely sales volume at closer to $600 million, described the deal as good for Blockbuster but bad for an already crowded CE scene.

"Inviting Blockbuster to the party may have been poorly timed," he observed in a research note, equating the extra capacity to 50 new Best Buy stores and citing Best Buy's own modifications to the Musicland chain. "Adding capacity just as demand has begun to show signs of weakness may make it tough to make money in the CE category."