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Microsoft deal may cement Tandy's turnaround

Three years ago, Tandy--RadioShack's parent company--was on rocky ground. Since that time, its has popularized the "store within a store" concept and gradually reversed its fortunes.

Will today's Microsoft alliance help Tandy be the comeback kid of consumer electronic retailers?

Only three years ago, Tandy--RadioShack's parent company--was on rocky ground, with dropping sales and earnings and a confused strategy in the consumer market amid a downturn in retail PC sales. Since that time, Tandy has shut down under-performing stores, popularized the "store within a store" concept, and gradually reversed its fortunes.

With today's Microsoft alliance, the company may have cemented its turnaround.

The deal could reinforce the turnaround, analysts say, while providing a much-needed boost for the software giant's Internet services.

RadioShack will create Microsoft stores within its 7,000 retail outlets, the companies announced today, to promote Microsoft Internet services and products, including MSN and WebTV. The deal will also provide a boost for RadioShack's e-commerce efforts, with Microsoft investing $100 million in RadioShack.com, a new Web site.

The alliance also highlights the retailer's recovery. At the end of 1996, Tandy shut down its Incredible Universe line of computer superstores and closed one fifth of its Computer City stores, amid a sharp earnings downturn. Since that time, the company has focused solely on RadioShack.

At the same time, the company began emphasizing service-oriented products such as cell phones, even launching a Sprint "store within a store," for its handsets. This new strategy has largely paid off, analysts say, and RadioShack has launched similar promotional areas for Compaq Computer and RCA.

"The company started to turn around a few years back when they started to focus on providing a meaningful distribution for a number of different brands," said George Sutton, an analyst who follows Tandy with Dain Rauscher Wessels.

Tandy
at a glance

HQ: Fort Worth, Texas  
Chairman: Len Roberts  
Exec VP: David Christopher  
Employees: 38,200  
Annual sales: $4.7 billion  
Annual income: $61 million  
IPO: December 1970  
Ticker: TAN  
Exchange: NYSE

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Source: Bloomberg 11/11/99

Tandy chief executive Len Roberts said he expects the MSN service revenues to boost Tandy's recurring revenue stream to $250 million by 2004, up from $60 million this year.

"It's significant for RadioShack in that it's broader than what they originally were looking to do, which was find an ISP [Internet service provider] partner," Sutton said, explaining that the deal will also put RadioShack.com on the MSN network. "Their goal is also to be a portal for consumer electronics questions, and without Microsoft that would have been difficult to achieve."

By hooking up with RadioShack, Microsoft is placing a premium on the retailer's experience in explaining and selling complicated technologies like digital subscriber line (DSL) and home networks. In that sense, the deal makes Microsoft something of an anomaly among Internet service providers, most of whom are hooking up directly with PC makers to bundle their services.

RadioShack's expertise selling services to consumers, such as through its deal with Sprint to sell service contracts along with cell phones, appealed to Microsoft, according to Yusuf Mehdi, director of product marketing for MSN, who claimed that 70 percent of all cell phones are sold through RadioShack.

"If you ask Compaq and Sprint, both would say its [hooking up with RadioShack] was among the best decisions they made as a company," Sutton said. "It's been a home run."