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RadioShack Reassessing A/V Assortment

9/23/2010 09:00:00 AM Eastern
NEW YORK — Given its heritage in wireless, which goes back to pagers and brick-sized handsets, RadioShack is uniquely positioned to capitalize on the current explosion in smartphones and mobile broadband.

As Goldman Sachs retail analyst Matt Fassler noted during the company’s Global Retailing Conference here last week, “Probably the most successful product cycle these days in consumer electronics — and there aren’t many — is the smartphone and wireless marketplace, and RadioShack is the retailer most leveraged to that world.”

But after re-establishing its mobile authority by remodeling the front-half of stores around wireless, adding iPhones and T-Mobile, promoting the category in its “The Shack” marketing platform, and shouldering Target’s entire mobile business, management is now turning its attention to the rest of the assortment, as RadioShack continues to develop its identity for a new generation of customers.

As chairman/CEO Julian Day and chief financial officer Jim Gooch told Fassler during a Q&A session at the conference, the company’s recently installed chief merchant Scott Young and his newly formed merchandising team have been tasked with re-evaluating the chain’s A/V assortment, which has variously included TV, video gaming, PCs and personal media players.

“We’ve been in and out of some of those categories,” Gooch said, and Young and his merchants are presently “determining the role of those products,” based on their ability to drive traffic and fill market baskets with accessories and other attachment sales.

As a result, RadioShack will undergo a series of product transitions over the next few quarters, he said, after which the company “should be better defined as to what we stand for in those categories.”

“Some categories are not performing as well as we’d like,” acknowledged Day, “and we’re working through the assortment in each category to make sure it’s right for our stores and to merchandise it in a way that makes sense for our customers. There’s an upside to getting that right.”

TVs, for example, will likely be limited to 40-inch and smaller screen sizes, given the space limitations of the stores. “It makes sense to be in small-screen TVs,” Gooch said. “You won’t likely see us compete in large sizes.”

Similarly, RadioShack can’t compete on the breadth of its gaming assortment, but “can carry more of a convenience assortment,” he said.

While A/V is in flux, management remains committed to the company’s other core categories, including power, accessories, parts and service. Power received a big boost in January with a section reset and the rollout of RadioShack’s private-label EnerCell battery brand, which is showing quarterly growth. Within accessories, the company is showing growth in post-paid wireless products, but “can do a better job” of filling the basket, Gooch said.

Parts, he noted, is “a strong heritage and destination business” with very attractive margins, low capital requirements and little brick-and-mortar competition. And service, comprised of extended-service plans and prepaid airtime cards, is enjoying “good growth” on the warranty side, but has room for improvement with airtime.

As part of its broader product focus, RadioShack will begin emphasizing its total assortment in its advertising, and will tweak its training and compensation model for sales associates. “Hopefully we will be a little better at selling the whole solution, which will pick up other categories and is important to cash flow,” Gooch said.

Looking ahead, both executives foresee a continuation of the present slow-growth environment at best, and will lean heavily on wireless to navigate through it. “Mobility has shown a great deal of resilience in the face of a weak economy,” Day said. “Hopefully we can still generate growth in a low-growth environment,” while supporting operating margin through inventory management, cost controls and conservative use of the company’s vast cash reserves.

Day refused to comment on reports that the company had shopped itself to equity investors and possibly Best Buy this year.
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