RSH - Q1 ends and WS does a 180.
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Investor's Business Daily
Best Buy, Wal-Mart Take On RadioShack In Cell Phone Retail
Wednesday April 4, 7:00 pm ET
Reinhardt Krause
A mobile phone retail battle is in the air.
Electronics chain Best Buy (NYSE:BBY - News), No. 1 retailer Wal-Mart Stores (NYSE:WMT - News) and longtime cell phone retailer RadioShack (NYSE:RSH - News) are among the players.
The competition is intense, though the retailers are vying for the scraps. The meat of the market belongs to the big four wireless phone companies -- AT&T's (NYSE:T - News) Cingular unit, Verizon Wireless, Sprint Nextel (NYSE:S - News) and T-Mobile USA. Combined, they operate almost 7,000 retail outlets themselves. Retail consumers buy about 65% of mobile phones directly from the wireless firms, analysts say.
But that still leaves enough business to get retailers' increasing attention.
RadioShack has used the fact that is has a lot of easy-to-find stores -- 4,465 -- to gain a convenience edge. But it's losing that edge as rivals such as Best Buy and Wal-Mart expand into wireless retailing.
Results Beat Views
Best Buy has teamed with a seasoned European cell phone retailer, Carphone Warehouse, to open five mobile-only stores in New York City since November. Best Buy on Wednesday released results for the quarter ended March 3 that beat analysts' views, as per-share profit rose 20% from the year-ago quarter to $1.55 and sales rose 21% to $12.9 billion.
"In the retailing channel, companies have different strengths," said Ross Rubin, an analyst at research firm NPD Group. "Best Buy has a strong brand. Wal-Mart, because of their reach, is a competitor that has to be taken very seriously."
One of RadioShack's strengths has been tight marketing ties with wireless firms. RadioShack sells mobile phones from Cingular, the nation's biggest wireless firm, and Sprint Nextel.
The company began selling phones for Cingular in 2006, when it ended a marketing pact with No. 2 wireless firm Verizon. RadioShack has sold Sprint phones since 1997.
RadioShack's relationship with Cingular, though, has hit a bump. Cingular will be the only U.S. wireless firm to sell Apple's (NasdaqGS:AAPL - News) new music-playing iPhone, slated to be available in June. But the phone won't be sold at RadioShack, just at Cingular and Apple stores. Cingular said last week that it has received more than a million inquiries about the iPhone.
"The fact that Apple and Cingular didn't feel the need to include RadioShack in the iPhone deal demonstrates that the balance of power continues to move away from RadioShack in the (wireless) space," Gregory Melich, a Morgan Stanley analyst, wrote in a note to clients.
He says RadioShack's other problem is that Best Buy, Circuit City (NYSE:CC - News), Target (NYSE:TGT - News) and Wal-Mart are all devoting more space to cell phones.
Circuit City sells phones for Verizon Wireless, a joint venture of Verizon Communications (NYSE:VZ - News) and U.K.-based Vodafone (NYSE:VOD - News). In 2004, Circuit City dropped T-Mobile in favor of Verizon Wireless. Verizon is responsible for salespeople, inventory and displays at the mobile "stores within a store" at Circuit City outlets.
Wal-Mart, meanwhile, has been gaining traction in wireless retailing. Wal-Mart has evolved from selling mainly cheaper phones and prepaid rate plans to offering high-end devices. Wal-Mart also offers monthly rate plans for customers that sign contracts with the big wireless firms.
Wal-Mart has been redesigning the electronics department at many stores, and it's giving wireless prime placement.
Still, some analysts wonder how far Wal-Mart can go. It might not appeal to upscale shoppers, Rubin says. "In terms of electronics, they tend to do better in the commodity segments," he said.
Best Buy isn't a newcomer to wireless retailing, but its partnership with U.K.-based Carphone Warehouse is noteworthy, Rubin says. Carphone Warehouse is Europe's biggest independent wireless retailer. It's also an aggressive marketer, having expanded from mobile into landline Internet services.
Best Buy and Carphone Warehouse formed their alliance in 2006. They haven't disclosed financial terms.
In the U.K., Carphone Warehouse has staffed some of its Internet stores with Best Buy's Geek Squad. Geek Squad has provided computer services to consumers and small businesses in the U.S. since 2002.
Carphone's 'Been Successful'
While Best Buy has the well-known brand in the U.S., Carphone Warehouse has the wireless retail know-how.
"Best Buy is trying to figure out the mobile business, and Carphone Warehouse has been very successful in Europe with a multivendor model," said Andy Hargreaves, an analyst at Pacific Crest Securities.
Where RadioShack and Circuit City focus on one or two wireless carriers, Best Buy offers phones from eight wireless firms.
"We have a broader choice than you're going to get at a RadioShack or carrier-owned store," said David Sprosty, CEO of Best Buy Mobile.
By giving consumers a wider choice, Best Buy plans to set itself apart from other cell phone retailers. Besides the stand-alone stores, it's set up eight new mobile stores within existing Best Buy stores.
Best Buy might open "dozens more" mobile stores this year, Lehman analyst Alan Rifkin speculated in a note to clients. He says Best Buy's strategy "directly targets RadioShack's wireless business."
Sprosty wouldn't say how many stores Best Buy Mobile will open, but he says expansion plans are being readied.
He says that Best Buy believes it needs a bigger retail presence to counter the growing number of outlets owned by wireless firms themselves.
Sprosty says Best Buy's salespeople don't push one wireless brand over another and aren't paid commissions by wireless firms. "People are getting impartial advice in our stores," he said.
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