RadioShack Bankruptcy Plan Won’t Reshape Cellular Market - Twice

RadioShack Bankruptcy Plan Won’t Reshape Cellular Market

Sales lost by ATT, Verizon will go to multiple Shack competitors
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Fort Worth, Texas — RadioShack’s Chapter 11 plans, if approved, will eliminate AT&T, Verizon and select MVNOs, including TracFone, from almost all of the RadioShack stores that remain open but won’t have much impact on the wireless providers’ bottom lines, analysts said.

The reorganization plan, however, might give a boost to Sprint, which will be the exclusive carrier in about 1,750 of the approximate 2,100 RadioShack stores that survive. Nonetheless, Sprint will lose visibility when around 1,900 RadioShack stores are shuttered under the plan.

A Sprint spokesperson said the company expects “to operationalize” the plan in the second half.

Under the plan, about 2,100 of the chain’s approximate 4,000 stores will remain open, and of those, around 1,750 will feature Sprint-operated stores-within-stores, which will take up about a third of the stores’ floor space, a Sprint spokesperson told TWICE. The store-in-stores would sell only Sprint-brand wireless services, including Sprint’s prepaid Boost Mobile and Virgin Mobile brands, all of which are already available in RadioShack-owned outlets.

All other wireless brands, including prepaid MVNOs TracFone and Net10, would get booted out of the 1,750 outlets. T-Mobile isn’t sold through RadioShack.

“Other brands may be sold in the other [remaining] 350 RadioShack locations, in which case Sprint will also have the right to be represented,” the spokesperson noted.

RadioShack’s online store might also become Sprint-exclusive. “Should the transaction be approved, it’s our understanding that RadioShack’s online store would only provide for the sale of Sprint-branded mobile devices,” the spokesperson said.

Though Sprint comes out better in the RadioShack reorganization than its competitors, the competing carriers won’t get hurt, said Steve Baker, NPD industry analysis VP. “In cellular, while RadioShack was a solid outlet for its cellular partners, there are plenty of other locations, between other national retailers, the carriers own stores, and independent wireless stores to absorb the volume that would have gone to RadioShack,” he said.

“The two nationals [Verizon and AT&T] will see RadioShack sales go to a combination of their remaining national retail partners, their independent partners and their own stores. They both have plenty of distribution points. I don’t think the loss of the RadioShack stores will create a challenge.”

Indeed, competing carriers have plenty of “retail points of presence” through which to sell a product that has become a necessity. AT&T, for example, sells though more than 5,000 branded locations, with more than 2,000 of them owned by AT&T and the rest operated by authorized dealers, an AT&T spokesperson said. On top of that, AT&T sells smartphones, tablets and accessories in more than 12,000 national retail locations across the country.

Verizon operates about 1,700 of its own outlets, excluding Verizon-branded outlets operated by authorized dealers. Verizon decline to specify the number of authorized AT&T-branded dealers or the number of other retail outlets through which it sells service.

For its part, Sprint operates about 1,100 stores, excluding Sprint-brand stores operated by authorized retailers. CEO Marcelo Claure recently said Sprint has 500 to 600 fewer stores than T-Mobile and 3,000 fewer than Verizon, but he didn’t specify whether those numbers include carrier-branded stores operated by authorized retailers. A spokesperson declined to reveal Sprint’s total retail points of presence.

Claure, however, wants more Sprint-exclusive outlets, and the RadioShack partnership is one way to get them. “Distribution growth is imperative” to adding subscribers, he said during a recent conference call with analysts. There are three ways to attract new subscribers, he said: building a high-quality network, compelling offers, and distribution.

Though Claure will lose about 1,900 outlets under RadioShack’s reorganization, the Sprint-exclusive RadioShack stores could deliver higher volumes than the carrier currently enjoys. “I would expect that stores focused on the Sprint brand, manned by Sprint-focused employees, and fully integrated into the Sprint national marketing plans would do substantially better [for Sprint] than in the old multi-carrier RadioShack, and more than enough to offset the loss of the shuttered RadioShack outlets,” said NPD’s Baker.

Some analysts aren’t so sure.

“Sprint made it clear to us in 2014 that their customer focus was consumer, SMB and midsized enterprise, all targets they can serve readily via retail outlets,” said Gartner analyst Bill Menezes. “Adding more retail outlets cheaply via a financially stressed RadioShack is a plus for Sprint in that it expands this channel at low cost and relatively low risk.” However, he continued, “what’s puzzling is the value Sprint gets from having a minority presence inside a retail location that still will prominently feature a long-irrelevant brand. I’d argue that aligning one’s brand to a bankrupt RadioShack brand when you’re already struggling to add the most profitable customers is a risk.”

Even with Sprint’s name alongside RadioShack’s on the store exteriors, “does this provide a compelling reason for customers to give Sprint consideration and preference?” he asked. “Outside of the clearly dwindling number of RadioShack brand loyalists, I doubt it.”

Menezes agreed that the carriers losing distribution through almost all RadioShack stores won’t feel a thing. “Given the breadth of the retail channel that the other carriers and MVNOs have — you’re looking at more than 20,000 U.S. retail outlets that MVNOs and carrier prepaid brands have just through Safeway, Kroger, Target, Wal-Mart and 7-11 — it’s doubtful losing exposure in RadioShack stores will put much of a dent in their retail channel.”

About half of RadioShack’s sales came from mobility products, including wireless phones, tablets, e-readers, accessories and commissions and residuals. In fiscal 2013 ending December 2013, mobility products delivered $1.7 billion, or 55 percent, of the $3.09 billion in sales generated by the company’s owned-and-operated U.S. stores, the company’s financial report shows.

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