RadioShack provides foundation for Tandy turnaround

Discount Store News, Jan 4, 1999 by Laura Heller

There is an air of excitement at Tandy headquarters these days. A new ceo, a stronger core business, an ambitious growth strategy and, finally, no more bleeding business ventures.

And it all goes hand in hand with Tandy's new leadership.

On Jan. 1, Leonard Roberts took the helm of the company, replacing John Roach, who retired after 17 years as ceo True Roberts isn't new to Tandy, he has served as president of RadioShack since 1993 and was largely responsible for making his division the renewed focus--and thus the core business--of the company. In fact, some industry analysts believe Roberts single-handedly breathed new life into RadioShack.

The strategy of putting RadioShack at the forefront of its business couldn't be any clearer. "Tandy is RadioShack and RadioShack is Tandy" is the mantra of the day. "It's an obsessive relentless focus on RadioShack," Roberts told DSN.

When Roberts joined the company in 1993, he immediately set about shaking things up. "Five years ago, RadioShack was an icon that was dying quickly from profit and sales erosion," he said. Although the chain continued to turn a profit, management turned its attention elsewhere, and RadioShack languished, serving as little more than a cash cow to fund outside ventures.

In the early 1990s, Tandy began promoting the chain as a seller of cutting-edge technology, something that it quite frankly was not Rather than focus on what it was good at--selling parts and accessories and providing information to a vast customer base--it was attempting to compete with the CE superstores. And that's something it could never pull off, given its store size and business model.

"When you have a small store with limited selection and all you are doing is promoting a product as cheaper, like Circuit City and Best Buy, you're going to lose relevancy," he said "That's what was happening-RadioShack was losing great relevancy."

Consumer research revealed that close to 95% of American consumers had bought something at RadioShack at least once in their lifetime. When queried as to what RadioShack sold, consumers inevitably held up thumb and forefinger an inch apart and said, "They sell these"--referring to all those little electronic adapters and devices that most CE consumers can't even identify. In other words, if it was technical and a bit confusing, you would find it at RadioShack.

Thus began the transformation of "America's Technology Store" to "America's Answer Store," as RadioShack repositioned itself as a retail service concept.

"Our role is not to sell technology, but to demystify technology," Roberts said. "The real equity certainly wasn't the size of the store or selection of product but the trusted RadioShack sales personnel."

And so, the answer store was born.

The trick wasn't to try to change what RadioShack stood for in the minds of consumers but to reinforce and expand on it.

"[RadioShack's] strategy is to be the communicators of advice on anything that is hard to understand for the mid-market consumer," said George Sutton, an analyst with Minneapolis-based Dam Rauscher.

Tandy's first step was to strengthen the core business, which comprises 33% of product mix, 45% of net profits and drives 80% of store traffic, said Dave Edmondson, senior vp at Tandy and executive vp and coo at RadioShack.

"It is a very profitable business, but it was not a growth business," Roberts said. "We decided several years ago to develop another anchor for the business, and that was telecommunications" On Sept. 23, 1997, RadioShack held simultaneous grand openings for 6,000 Sprint stores after a five-month remodeling project, establishing telephony products as that anchor The move quickly paid off.

"It's really been driving our business," Roberts said. In just a year RadioShack has become the nation's No. 1 seller of telephony products. In 1998, it sold approximately 500,000 long distance contracts and two million wireless phones.

Prior to the launch, consumer research showed that 13% of the public considered it a primary destination for telephony products. A year later, that figure had jumped to 38% "Direct awareness has soared," Roberts said. "We have clearly made inroads." The long-term goal is to reach a 60%, top-of-mind awareness in this category.

In the last four years, RadioShack went from less than a 0.5% market share to an approximate 12% market share in telephones and cellular, Edmondson added. It currently has a 70% market share in wireless phones alone.

The telecommunications business feeds into Roberts' strategy to grow the company through residual revenue streams. "We're now selling lots of services besides wireless," he said. Those services even include long-distance satellite services For each service contract sold at a RadioShack store, the company gets a percentage, which has created a profit center that continues to pay out as consumers pay each monthly bill.

Residual income for 1998 is projected to be more than $60 million, and Tandy projects it will reach $100 million in 2000 That's pure profit to the bottom line.