RadioShack In Cost-Cutting Mode

Fort Worth, Texas— RadioShack plans to rigorously curtail costs in order to meet its goal of 13 percent to 15 percent annual earnings per share growth over the next three years despite sales gains in the low- to mid-single digits.

Laying out its game plan before analysts during a two-day investor conference, senior management cited projected sales growth of 2 to 3 percent at the low end of expectations and 4 percent to 5 percent at the high end through 2005.

To help it hit its earnings targets, the company is planning a series of vendor and price initiatives. Among the former: rationalizing its vendor base, extending payment terms, and centralizing product procurement to lower distribution and logistics costs.

On the pricing side, the retailer is implementing new software that will allow it to respond to market conditions with more dynamic pricing that should increase turns and help reduce markdowns.

The chain has also formed an internal cost team that is targeting ways to trim expenses, and will use its free cash flow to repurchase between $200 million and $250 million in RadioShack shares.

On the product front, the company said it is looking to accessories, wireless handsets and services, specialty batteries, digital photography, personal electronics and portable computing to drive business this year.

Its 2003 sales outlook by category is as follows:

Wireless: Modest sales gains of 3 percent to 4 percent, compared to 10 percent growth in 2002, buoyed by the newly attained ability to activate Sprint accounts in store.

Computers: Gains of 10 percent to 12 percent due to a shift toward home networking, digital imaging and portable computing, and away from desktops and monitors.

Home Entertainment: Flat to 2 percent, with gains in accessories and home video offset by declines in home satellite systems.

Three-year projections for its core product segments — which RadioShack describes as "servicing everyone's routine electronic needs" — are as follows:

Computer accessories: "Strong double-digit" percentage growth

Home entertainment accessories: Mid-single digit gains

Wireless accessories: 10 percent growth

Batteries: High single-digit growth

RadioShack plans to meet those expectations through better in-store space allocation, improved brand and product assortment, depth of stock, associate training and improved organizational focus. The latter includes better management reporting systems, aligned compensation plans and enhanced speed to market, the company said.

To further sharpen its sales force, RadioShack is implementing Mystery Shopper and Floor Leader programs this year. The former is designed to monitor, measure and drive progress in associates' efforts to add on accessories with sales tickets, while the latter, to be tested selectively, will give greater recognition and accountability to high-performing staffers.

The company will also change its merchandising approach by competing in selective product categories, shifting its focus toward families, and planning its merchandising seasonally rather than annually. Similarly, sales events will become more "diversified," management said, with "family communications sales" supplanting "wireless sales," by way of example.

On the store front, the retailer reported that it had completed the wideband wiring of all locations last year, allowing for in-store handset activation, faster battery identification and product stock information, and ticket look-up functionality for speedier returns. The company noted that high-speed connectivity has cut the time of common in-store tasks — which are repeated hundreds of thousands of times per month — by two to five minutes.

Executives added that while the recent round of store retrofits made a negligible impact on the attachment rates of accessories, initial results indicate improved sales performance by RadioShack's 37 new Best to Shop concept stores, currently being tested in Tucson, Ariz. and Jacksonville, Fla. (See TWICE, Jan. 9, p. 78.)

Indeed, 227 more concept stores will be built or converted this year, the company announced, although further analysis of their return on invested capital is necessary before pursuing a nationwide rollout.