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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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