RadioShack is reporting a slowdown in its core wireless and battery businesses this quarter.
“Business trends have under-performed our expectations,” said president and CEO-elect David Edmondson. “This has been driven by a recent deceleration in wireless sales in our core stores and, to a smaller extent, underperformance in our battery business.”
In a conference call, Edmondson said the company's wireless woes were related to the popularity of family plans, which offer free or discounted mobile phones and reduced rates for additional subscribers. Unlike carriers, which enthusiastically promote the programs in their direct-sell efforts, RadioShack's store managers are reluctant to push the plans because they eat into their overall gross margins, he said.
Edmondson noted that family plans now represent roughly half of all new wireless contracts. “This is a trend that's here to stay, and we have got to get execution around it,” he said. Edmondson also cited slower-than-expected sales of Vcast, a new high-speed wireless service based on Qualcomm's EV-DO technology, which RadioShack began selling in February.
He added that the battery drain was attributable to markdowns on specially packaged holiday gift sets, which have cut into sales of regularly priced batteries.
Retail analyst Dan Wewer of CIBC World Markets called RadioShack's misread of the importance of family plans a disappointing tactical error given the chain's prominent position in wireless retail. He further described carriers' own retail distribution as a “real threat” to RadioShack, given that two-thirds of Verizon's new subscriptions came from its own stores during the second half of 2004.
Wewer added that new RadioShack initiatives would not likely gain traction before the second half of 2005. These include a management restructuring that, over the past three months, has resulted in a new chief financial officer (David Barnes), new chief merchant (Jim Hamilton), and new heads of store operations (Stu Asimus) and marketing and advertising (Don Carroll).
In addition, the company has consolidated its marketing and advertising departments, changed ad agencies, and is launching a new information management system that will allow the chain to track sales by SKU and replenish inventory on a store-by-store basis.