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RadioShack To Revamp Stores, Sell Retail Services

Fort Worth, Texas — RadioShack will embark on an ambitious three-year strategic growth plan beginning in 2005 that’s designed to boost sales and earnings by revitalizing its stores, expanding its international presence, getting an early lead on new technologies, and selling products and services to other retailers and distributors.

“Over the past couple of years we have focused on the fundamentals of our business by strengthening our supply chain, divesting ourselves of non-core businesses, and becoming a more disciplined organization,” said chairman/CEO Len Roberts. “We are now well-positioned to implement a longer-term growth plan that we believe will bring increases in both our top line and bottom line.”

On the store front, RadioShack plans to “significantly accelerate” the rollout of its Concept 3 retail store format, currently found in 400 of the chain’s more than 5,000 company-owned locations. The new store environment, which features wider aisles, more open space and a central checkout counter, will be accompanied by a merchandise re-assortment that emphasizes the chain’s seven core categories — wireless; accessories; power; modern home (A/V, home networking and satellite TV); personal electronics; technical; and services. The assortment will also be tailored to match the needs of local markets.

Roberts, speaking at a Goldman Sachs retailing conference, said the chain would reduce its exposure in other categories by selling those ancillary products online and in select stores, or by eliminating them from the mix completely.

In addition, regional employees, from district and store managers to sales associates, will be retrained based on best practices, and new store processes will be deployed to further ensure a “superior customer shopping experience,” the company said.

The changes were prompted by customer surveys which gave RadioShack stores low grades on such factors as “well-organized,” “relaxed environment,” “having the products and services we want” and “fun,” Roberts said.

“Customers have given us very positive feedback on our new store environment,” he noted. Indeed, customers tend to shop longer in the new format stores, and products there are perceived as “better” than identical items sold in older locations, a spokesperson said.

RadioShack wouldn’t disclose a timetable for the Concept 3 rollout, although Roberts indicated that another 150 stores would be upgraded by the end of the year. The process will eventually cut the average store age in half, he said.

The confluence of better assortment, enhanced training and refreshed store base is expected to yield improved store performance over time, Roberts said. “Combined with a relevant market-by-market product assortment and overall operating improvements, we expect that the new format will produce greater financial returns and enhance the power of the RadioShack brand.”

Internationally, the company plans to expand its retail base in Mexico, where it currently operates 88 stores through a joint venture with Mexican merchant Gigante. Roberts said Mexico represents a “growth opportunity,” as demonstrated by the same-store sales gains of its south-of-the-border units, which are outpacing those of their U.S. counterparts. The proximity of RadioShack’s Fort Worth, Texas, headquarters to Mexico offers an added advantage, he said.

Ongoing litigation over the sale of its Canadian licensee, InterTAN, to Circuit City in May precluded RadioShack from addressing its plans for Canada.

On the product front, RadioShack wants to accelerate the adoption rates of new technologies early in their life cycles through strategic vendor alliances, much as it did for personal computers and CDMA wireless technology. In exchange for access to its 7,000 stores and 40,000 employees, the retailer hopes to reap certain exclusivity, intellectual property or licensing rights and the ability to benefit from sales through the original equipment manufacturer, Roberts said. One current example is the company’s interchangeable itips power connectors, developed jointly with Mobile Electronics for RadioShack’s iGo line of power adapters, which will be merchandised with Motorola handsets.

RadioShack also hopes to leverage its product development and global procurement expertise through sales of its proprietary products and brands — such as its LifeWise personal care line and ZipZaps RC toys — to distributors and non-competitive retailers.

Taking the resource concept further, RadioShack will also offer a full compliment of retail services including global sourcing, distribution, logistics, replenishment, repair and even complete turnkey retail operations. The company is already providing some of those services to other businesses, including wireless handset repair out of its Fort Worth repair center and a 10-mall test of Sprint kiosks around the country.

Roberts said the repair operation, which will expand to two additional facilities by year’s end, will yield more than $10 million in operating profits this year, and is well-poised to tap into a $1 billion market that processes 30 million units annually.

He added that the RadioShack-operated kiosks are capturing new, higher-end customers for Sprint, and that both companies are sharing in the capital expenditures and income. Opportunities exist for other products to be sold through kiosks, he said, and for the kiosks to be placed in other retail stores.

According to chief financial officer David Johnson, the kiosks and the expansion in Mexico will facilitate square footage gains, while the host of non-capital intensive B to B services will reduce RadioShack’s dependence on wireless sales and in-store comps for growth. The chain will begin to see the fruits of its three-year plan in 2005, when sales are projected to grow at a 4-percent to 6-percent rate, and earnings per share are expected to grow 19 percent to 21 percent, the company said.

“For years RadioShack has succeeded using its skills to support a small-box, specialty retail store. As a result we have developed core competencies in certain areas that are attractive to manufacturers and other companies,” Roberts said. “These unique opportunities allow us to grow our business by doing what we do best. By leveraging our assets in a different way the door is open for us to partner with a multitude of companies.”