The just-inked "strategic alliance" between Tandy and Thomson, making RCA the predominant if not exclusive audio/video brand at RadioShack, would appear to be a win-win for merchant and vendor on several fronts.
For Tandy, the pact provides a means to boost its lagging A/V business - and an opportunity to finally pull the plug on its ailing Optimus house brand - while positioning the company for the coming digital and convergence revolutions.
For Thomson, the five-year deal, whose centerpiece is an in-store concept shop, offers a significant boost in distribution for the RCA brand. Some 4,000 company-owned RadioShacks are expected to feature the 18- to 24-foot RCA Digital Entertainment Centers this time next year, with additional stores to be retrofitted throughout the balance of 2000.
The RCA centers, and Tandy's newfound focus on "connectivity," will also provide an enhanced platform for sales of RCA's DirecTv satellite systems as RadioShack phases out its Primestar commitments.
Tandy launched its shop concept three years ago with the installation of The Sprint Store and more recently extended the program to computers with its Compaq Creative Learning Centers. According to Tandy's CEO Len Roberts, RadioShack now has 70% market share in wireless phone sales, outselling Sears, Circuit City and Montgomery Ward combined.
Roberts and James Meyer, executive VP for Thomson, lauded their new partnership as possibly the biggest yet for RadioShack and one of the most significant in all of consumer electronics.
"This is a powerful strategic alliance that solidifies yet another piece of our home connectivity strategy," said Roberts, who cited RCA's brand recognition and leadership, as well as the products and services of Thomson investors Microsoft, NEC, DirecTv and Alcatel.
For his part, Meyer noted that "the access to widespread distribution" afforded by RadioShack's 7,000 storefronts "is the perfect complement to our strategy."
Both agreed that Tandy's service-oriented, neighborhood store stance will prove a decided advantage in the technology-intensive era of digital entertainment. "Where the consumer has confusion, we have opportunity," said Roberts. "We will explain the technology and install the hardware."
In return, RCA will take care of Tandy's pressing need to drop its private-label Optimus brand. According to RadioShack executive VP David Edmondson, consumer research showed that only 29% of customers would shop the store for Optimus products, while RCA brand availability boosted that figure to 70%. "RCA will serve as a strong motivator to increase sales," he said.
Edmondson acknowledged that A/V turns and margins lag behind those of other product categories at RadioShack, a situation, added Roberts, that the RCA deal will rectify by spurring double-digit growth. A/V products currently represent 15% to 16% of RadioShack's sales volume, he noted.
Roberts also anticipates that residuals from DSS sales will double next year to between $110 million and $120 million. Tandy also foresees improved forecasting, minimized lead times, and lower A/V inventory, he said, thanks to Thomson's Chain ReAction inventory management systems.
Edmondson said RadioShack will not try to be a low-price leader in audio/video, but will be "market-competitive," as evidenced by the $299 street price of its debut DVD player, which began rolling out to the chain's 3,500 stores. RadioShack said it has no plans to carry Divx, which would require a separate agreement with Circuit City.