Some references to COMPAQ in boldface
June 8, 1999
Radio Shack Decides to Embrace
A Brand New Retail Strategy
By EVAN RAMSTAD
Staff Reporter of THE WALL STREET JOURNAL
Just a few years ago, Radio Shack practically had to beg manufacturers to supply it with brand-name consumer electronics.
Now, many of them are lining up to get the newest television sets, computers and audio equipment into Radio Shack stores.
Radio Shack's odyssey, from neglected retailing has-been to powerful industry arbiter, reflects fast changes in the electronics business and an especially nervy turnaround strategy. Even as recently as two years ago, few people would have predicted a comeback for Radio Shack, whose last heyday was back in the early 1980s, when it introduced a $300 personal computer.
Tandy, Building on Radio Shack, Plans to Test Big-Store Concept (April 29, 1997)
A little more than two years ago, Radio Shack, a unit of Tandy Corp., of Fort Worth, Texas, began positioning itself to take advantage of a tidal change in the industry. The retailer noted that big manufacturers were getting fed up with giant urban electronics superstores, which offer a sea of deeply discounted products on warehouse-style selling floors staffed with minimally trained sales clerks. Radio Shack figured manufacturers might be willing to pay up to a retailer offering dedicated selling space and more control.
Since then, Radio Shack has remade its stores and the industry's retail model by breaking free from the crushing margins of electronics retailing. Radio Shack, for example, doesn't sell just equipment anymore: It also taps juicy revenue streams from selling Internet access and wireless telephone service. Next up, according to Tandy's chairman and chief executive, Leonard Roberts, may be cable television.
Tandy has everything riding on Radio Shack. In 1997, it sold or shuttered its 17 Incredible Universe superstores, abandoning plans to create the Ikea of consumer electronics. Last year it sold its 90 Computer City superstores to rival CompUSA Inc., of Dallas. The transactions leave Tandy with 7,000 Radio Shack stores.
Excluding results from the disposed-of stores, Tandy's 1998 net income rose 14%. Same-store sales, or those open at least a year, rose 7.4% in 1998, compared with 1.9% in 1997. For the first five months of 1999, same-store sales were up 14%.
Different Vision
The new strategy is 180 degrees away from the vision Charles Tandy had in the 1960s when he founded and built a vertically integrated manufacturing and retailing enterprise, with tight control over the design and manufacture of its products. The chain rode the CB-radio craze to the bank in the 1970s, and had success early on with personal computers. But by the mid-1980s, the stores became neglected, as Tandy plowed retailing profits back into innovative but ultimately unsuccessful manufacturing experiments, among them a low-priced laptop computer and an early video-disk player.
In 1993, Tandy sold its computer-making operations and brought in Mr. Roberts. It tapped the former chairman and chief executive at the Shoney's Inc. restaurant chain to be president of the Radio Shack chain and lead a new focus on retailing. Mr. Roberts figured Radio Shack's greatest asset was its many stores -- even if in many cases they were outdated and remarkably free of customers.
He had a interesting thought. What if Radio Shack were to refurbish the stores, and suppliers were to pay for it? In exchange, he thought, Radio Shack could offer exclusivity within its stores
Even inside Radio Shack, executives found the proposition a little hard to swallow. Dave Edmondson, a Radio Shack vice president who is now Tandy's chief operating officer, remembers standing before some of his Radio Shack colleagues, rehearsing the pitch he would make to computer makers. "I had a slide up that said we were going to ask them for $55 million to invest in this," Mr. Edmondson says. "People just started laughing."
Radio Shack chose International Business Machines Corp. as its exclusive PC-supplier in 1994. In exchange, IBM agreed to pay nothing to update the Radio Shack stores.
That didn't stop Mr. Roberts from the hunt for ways to get more people in the door. He found one answer in the lowly telephone. He discovered that it is the most frequently purchased electronics item and that women purchased more than 60% of Radio Shack's telephones. Mr. Roberts made telephones one of the stores' merchandise anchors. Today, one in three Radio Shack shoppers is a woman, compared with one in five in 1993.
Critical Move
The new attention to the telephone prepared Radio Shack for what would prove to be a critical move into wireless phone sales. When Sprint Corp. was looking for a retail base from which to sell its new wireless phone network, Radio Shack and Mr. Roberts offered to make Sprint its exclusive national wireless provider for 10 years. In exchange, Sprint would provide tens of millions of dollars in new store fixtures and advertising support, plus about 5% of the revenue generated by their shared customers. In 1996, Sprint agreed, and Radio Shack has helped it race into the lead in digital personal-communications service, or PCS. Radio Shack has since sold more wireless phones than rivals Best Buy, Circuit City, Sears, Roebuck & Co. and Montgomery Ward & Co. combined.
In 1998, Radio Shack cut a similar distribution deal with Compaq Computer Corp. Compaq refurbished a portion of Radio Shack's stores, controlling the look and merchandising of the space, and shares some of its service revenue with Radio Shack. The retailer plucks a portion of the fees from customers who buy a Compaq computer at Radio Shack and use it to log onto the Internet. In April, Radio Shack structured a similar royalty deal with broadband Internet service provider Northpoint Communications Group Inc., in which Radio Shack stores sell high-speed Web-access contracts. In 1998, Tandy recorded $34.2 million in such revenue, up from $7.9 million in 1997. It aims for $60 million this year.
Top executives at TV-manufacturing kingpin RCA, a unit of Thomson SA, became intrigued and called Tandy last year to inquire about becoming the chain's exclusive audio and video provider. They were late: It turned out RCA's archrival Sony Corp., which dominates the audio side of the business, was there first.
Radio Shack had approached Sony after determining it would make the best "partner" for getting the stores back into the audio-visual game. Radio Shack had been missing out on the resurgence in audio and video that started in 1997, when manufacturers released digital versions of video players, camcorders or cameras. Although Radio Shack stores had at one point or another sold RCA's satellite-TV systems and Sony's wireless telephones, Mr. Roberts envisioned a more focused approach.
He invited Sony to discuss an exclusive distribution deal based around a "store within a store." After RCA called, Mr. Roberts decided to turn the talks into a horse race, with three manufacturers under consideration. (He declined to name the third.)
'Picked Some Beacheads'
RCA executives liked the prospect of almost direct access to customers via an exclusive Radio Shack deal. Besides, they were aghast at the notion that their archrival Sony might possibly dominate so many stores in urban strip centers and small towns. "We picked some beachheads and said we're not going to cede ground to [Sony]," says Jim Meyer, Thomson's top U.S. executive. Radio Shack "was one."
The parties met several dozen times over several months. Last summer, to prepare for a visit from Mr. Roberts to its U.S. headquarters in Indianapolis, RCA created a mock-up of a Radio Shack store, with a 22-foot-long display showing off 50 RCA products, including small TVs, high-definition TV, VCRs, DVD players and speakers. Privately, Mr. Roberts told colleagues he was "blown away." But he told RCA's Mr. Meyer that the effort might not be enough to win.
By contrast, Sony executives were more casual, even at first suggesting they would put the Sony brand into just 1,500 Radio Shack stores. In January, however, Sony presented a merchandising concept that would unite audio, video and computing products, under the moniker "VAIO World." VAIO, which stands for Video Audio Integrated Operation, is a brand Sony is putting on an increasing number of products that combine audio-video and computing capabilities.
In the end, Mr. Roberts says, Sony's financial offer, including proposed store renovations and advertising support, was the sweeter of the two. But RCA's plans for introducing consumers to complex technology were more appealing. What's more, Sony wanted Radio Shack to sell Sony computers -- which would have conflicted with Radio Shack's Compaq relationship. In the end, RCA won. Radio Shack says it hopes audio and video sales will grow by double-digits next year.
Sony says it will keep talking to other retailers. "The retail floor is going to be more important" as digital products advance, says Teri Aoki, chief operating officer of Sony's U.S. electronics unit.
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