RadioShack Pursuing Three-Point Plan For Profitable Growth

By Alan Wolf On May 8 2012 - 4:01am




FORT WORTH, TEXAS – RadioShack is pursuing a three-pronged merchandising, marketing and expansion strategy to put the national CE chain back on a profitable growth track.

President/CEO Jim Gooch and CFO Dorvin Lively detailed the plan to investors last month after announcing an $8 million first-quarter loss.

The roadmap includes a renewed focus on the mobile and accessories categories, a new marketing campaign to highlight the chain’s broad wireless assortment, and new ventures and partnerships both domestically and abroad.

Mobile remains the company’s fastest- growing business, Lively said on a conference call, but its profitability has been impacted by a sales mix shift to iPhone and lower than expected gross profit margins from the 1,490 Target mobile departments it operates for the discount chain.

RadioShack and Target are addressing the problem through changes in the operating model, such as adjusting department hours and product assortment on a per store basis, Lively said, while Gooch praised iPhone’s high unit growth which drives traffic and attach rates for margin-rich accessories.

Lively noted that the company’s prepaid business is still struggling following the departure of T-Mobile last year, and that it will take more time to make consumers aware of Verizon’s availability through the chain.

RadioShack plans to herald its wireless offering in a new creative campaign being developed by recentlyhired Grey Advertising that will launch in the second half of the year.

The company will also build on its accessories business – which accounts for 50 percent of gross margin dollars – by expanding and enhancing product assortments, including headphones; optimizing pricing and marketing programs; improving in-store execution; and retooling its privatelabel products.

Under the price-optimization plan, select items will be priced “much more competitively” to project a value image, while prices on other SKUs will rise, Lively said.

The company also said it will enhance training for sales associates, and will continue to pursue new ventures such as its recently announced master franchise agreement with Malaysia’s Berjaya Corp. for 1,000 stores in 10 Southeast Asian countries over the next decade.

Lively added that top-line growth from RadioShack’s mobile, accessories and private-label businesses, together with greater cost efficiencies, should stabilize its margin structure.

Net sales and operating revenues slipped 0.9 percent to $1 billion during the quarter, ended March 31, while sales at company-owned U.S. stores fell 6.9 percent, partially offset by the addition of 610 Target departments. Comp-store sales, which include the Target results, decreased 4.2 percent.

The comp declines reflected lower sales of Sprint postpaid wireless plans, prepaid wireless handsets, laptops, and home entertainment accessories, the company reported.

Broken out by category, mobility sales at company-operated stores decreased 5.2 percent during the quarter due to lower postpaid wireless sales from Sprint following changes in the carrier’s early upgrade program.

Accessory sales increased 0.7 percent at company-owned U.S. stores, driven by higher sales of tablet accessories, headphones, wireless accessories and service agreements.

Sales of CE, which includes digital music players, computers and peripherals, cameras, landline phones, home audio and TVs, decreased 24.1 percent due to “ongoing difficult industry trends in these product categories,” the company said.

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