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RadioShack Revamps Operations To Boost Bottom Line

RadioShack is proceeding with a series of initiatives ranging from supply chain savings and optimized pricing to increased labor and store level productivity designed to improve its gross margins.

Senior RadioShack management detailed the stratagems — which included a revamped merchandise mix and the end of its exclusive A/V alliance with Thomson — during a two-day institutional investor conference at company headquarters here (TWICE, Jan. 26, p. 4).

The initiatives, some of which began last year, include:

Strategic pricing — RadioShack has begun using software to determine optimum pricing for its proprietary and non-commodity products that satisfy “distinct wants.” Last year some 500 SKUs were “right priced,” resulting in upwards of $7 million in incremental gross profit, explained chief business operations officer Arvin Goldberg, and the SKU count will rise to about 1,500 items by the end of 2004. The company will also institute local market pricing this year and more scientifically manage its markdown and sales process.

Store productivity — To improve return on space, RadioShack is devoting more square footage to profitable and growing categories like imaging and broadband connectivity, while consolidating SKUs and diminishing the store presence of laggards like computers. The chain has also either opened or retrofit about 230 stores with its new Best to Shop format (see TWICE, Jan. 9, 2003, p. 78) and a less expensive “light” version, and will revamp another 300 stores with both formats this year.

The new format has only provided a moderate sales lift, but consumer surveys indicate a greater satisfaction with the shopping experience. Behind the counter, RadioShack hopes to realize payroll savings through better scheduling of store staff, with more hands on deck during peak Sunday hours and fewer on weekdays.

The chain will also test the use of dedicated cashiers to free up commissioned sales people, and will break with tradition by hiring store managers from outside the company in addition to promoting them from within.

Supply chain improvements — Vendor consolidation contributed to a savings of $40 million in supply chain efficiencies last year and will continue in 2004. According to president/COO Dave Edmondson, RadioShack is also increasing the use of online reverse auctions and is renegotiating its payables terms with vendors.

Looking ahead, the company expects number portability to further boost its wireless business, which is projected to be its biggest sales driver this year with estimated growth of 5 percent to 8 percent. Chairman/CEO Len Roberts said the company will continue to play to its strengths, which he described as small cube products that require answers, can be accessorized, and are convenience driven, and will focus on technologies that are tied to its core power, communications and connectivity categories.