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RadioShack To Grow Digital, Revamp Stores

Building on its core batteries, parts and accessories strategy, RadioShack plans to widen its digital product mix, add more video gaming accessories and remodel its stores to better showcase key categories.

The company said it will offer a wider array of low margin digital devices like PDAs, digital cameras, and MP3 players and other portable audio products under such brands as Aiwa, Fuji and Olympus to help drive traffic and create new opportunities for add-on sales of more profitable accessories.

The portable digital products will also complement its in-store Compaq shops, which were spared by HP’s decision to maintain the nameplate for PCs.

The new game plan was pitched to shareholders at the chain’s annual meeting here as a way to build on the momentum of its anchor businesses and shore up the chain’s bottom line. “Our performance was not up to snuff last year, and the soft economy and the [Sept. 11] attacks were no excuse,” conceded chairman/ CEO Len Roberts. “RadioShack was beginning to lose relevance with consumers in terms of product selection and price. We weren’t positioned as well as we could have been.”

The answer, Roberts argued, lies in “hot, new, high-demand” digital devices. “It is imperative to have products that consumers need and want, that support and drive the digital revolution, because digital products are the lifeblood in the next surge of consumer relevance,” he said.

To counter the increasingly compressed margins of digital portables, RadioShack will provide its sales associates with specialized training and new pay plan incentives to ensure that they “add on accessories to every ticket.”

“We have the credibility with the consumer to accessorize the sale,” Roberts continued. “No matter what kind of electronics device, no matter where you got it, we are gonna accessorize it.”

The latest CE approach, which supplants a previous RCA-branded A/V plan, is part of the company’s new overarching strategy dubbed Anchors/Participatory and Opportunistic Product Categories/Start, Stop, Strengthen, or APOS.

As president/chief operating officer Dave Edmondson explained, RadioShack’s two anchor businesses — and the company’s first priority — remain parts/batteries/accessories and wireless communications. The former will benefit from new advertising that spotlights such margin-rich products as nitrogen-filled, gold plated cables, and an “increased focus” on batteries that will include repositioned displays and a new line designed for use with digital products.

Meanwhile, RadioShack’s wireless business, which grew 18 percent last year to $1.1 billion, stands to gain from the introduction later this year of 3G service from partners Verizon and Sprint. According to Edmondson, RadioShack already “does more wireless business than all other nationals combined,” and the company intends to grow that segment 10 percent annually, which is equivalent to selling three phones per store every day this year.

The “participatory” part of the equation includes such products as cordless phones, TV antennas and radio control cars, which boast average gross margins of 48 percent. RadioShack will goose the toy and gift side of the segment by adding 25 percent more new products annually and expanding it from a seasonal to a year-round business, as “birthdays happen every day,” Edmondson said. Stores will also carry a better selection of video gaming accessories in order to attract younger consumers, he added.

“Opportunistic” is the designation given to “new and exciting” traffic drivers, including the new assortment of digital products and satellite TV. Edmondson said RadioShack is beefing up portable audio with the introduction of Aiwa branded products, which will allow it to be more competitive on style and price. It will also be showcasing new digital cameras from Olympus and Fuji, and is currently the only national retailer to offer both DISH and DirecTV.

“Stop, Start, Strengthen” refers to improved productivity, a supply chain management initiative, and a new resource allocation strategy that includes direct marketing, anchor-specific advertising and a store remodeling program.

The retrofits, which begin rolling out this summer, will free up 10 to 15 linear feet of store space that will be devoted to high-margin accessories and will better showcase new merchandise. Edmondson said the new design will also “improve the look and feel” of the stores and improve the shopping experience by rendering them more “consumer-centric.” Enhancements will include a “customer friendly” parts drawer system that “makes it easy for customers to find what they’re looking for quickly,” and new displays that will encourage customers to “touch and try” hot products.

All told, the initiatives are expected to help grow earnings per share as much as 15 percent annually during the next five years. “It was a very tough year for us last year,” Roberts told shareholders, “and the business climate is still uncertain, but we’re poised for stellar growth.”