Tandy focuses on building retail businesses; improving profitability

Discount Store News, March 1, 1993 by Pete Hisey

FORT WORTH, Texas - Tandy's decision to spin off its $1.5 billion manufacturing activities makes it a pure retailer for the first time. Tandy is, in effect, walking away from highly profitable manufacturing business because it thinks its retail businesses will be even more profitable.

We have a highly focused, three-tier approach to retailing," said Philip Bradtmiller, director of investor relations. The company's Radio Shack division will continue to serve as "the ultimate electronics convenience store," he said, while the 300 branded Mac-Duff stores will serve secondary and outlying markets (the 100 store closings will almost all occur in major markets with strong competitors.)

The jewels of Tandy's operations, though, will be superstores The Incredible Universe and Computer City, each projected to become a national chain in the next few years.

Although industry observers have signaled thumbs-down on Tandy's ultimate superstore, the 160,000-sq.-ft. The Incredible Universe, saying that it costs too much money to run and won't make its sales goals of roughly $60 million a year, Tandy chairman John Roach remains a believer.

"Incredible Universe is meeting its projections," he said recently. "Based on the excellent sales performance of the first two Incredible Universe stores, we plan to open several more. And, Computer City [the computer superstore operation] will, open 16 stores in each of the next two years."

Industry observers are still on the fence about the concept. "Don't get me wrong, I applaud Tandy for being the only retailer in the field trying something different," said David Goldstein, president of Channel Marketing, which tracks the computer retail market. "But if they're doing $60 million a year, that's nearly $17,000 an hour based on a 68-hour week. We've had people in their stores monitoring the cheekouts, and even on Saturday afternoon, we never saw $17,000 move out the door."

Goldstein added that he hopes he's wrong; "They're technologically way ahead of everyone else, they have a truly exciting format that is a decided plus for the CE industry, and they're delivering a benefit to the consumer," he noted. "But we're still not seeing the numbers."

Seymour Merrin, of Merrin Resources, which also tracks the consumer electronics market, noted that Incredible Universe is "too big of a dog." The layout, he said, is "just too big to be a consumer electronics store. Its competitors are offering almost the same selection in well under half the space, which gives them an enormous cost advantage." Others have noted that Incredible Universe requires such heavy staffing, all of it salaried or hourly, that its cost of doing business has to be far higher than its smaller competitors.

Similarly, competitors have been less than impressed. Said one, who doesn't want to be identified, "they're at least twice as big as they have to be, and that wasted space has to be paid for somewhere. We're building bigger stores, but I don't ever see a time when we'd go over 100,000 sq. ft."

On the other hand, Incredible Universe has done a lot of things right. Most obvious: Commitment to software. Music, video, computer software and video games all drive traffic, and Incredible Universe has as good a selection in each category as competing specialty stores, and a far better selection than any other CE superstore barring, perhaps, Best Buy. Incredible Universe stocks more Windows software, for instance, than any other CE chain stocks computer software, period.

Further, Incredible Universe has addressed an ongoing problem in the CE market: Despite retailers mumbling about there never being anything new out there, the industry has turned out a steady stream of attractive products that have sunk without a trace, at least partly due to lack of shelf space or promotion at retail. The Incredible Universe stocks the full line of each vendor's production, and provides highly trained staff familiar with the full product line.

Roach, in a recent appearance at the National Retail Federation's annual convention in New York, waxed almost poetic concerning the format's future. There will be at least 50, and as many as 60, he said, by the end of the decade. Superstores are where America wants to shop, he said, if they offer incredible selection, incredible service, a measure of fun, and competitive prices.

In addition, the other superstore concept, Computer City, is profitable and is projected to add at least 50 more units by 1995 to an existing base of 20, Roach said.

According to Bradtmiller, Incredible Universe will open two new stores this year, five in 1994, and at least six in 1995. "Our learning curve will speed up as we gain more experience," Bradtmiller said, adding that the rollout is limited only by the "physical resources of our people." Tandy has both the money and the will to move faster, he said, but everyone, from architects to buyers, can only do so much, and in developing a chain from scratch, the number of changes on the fly make a more deliberate pace necessary.