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RadioShack proves there's strength in numbers

A series of recent alliances with tech leaders such as Microsoft, Verizon Wireless and Sprint is paying off.

The name RadioShack hardly conjures up images of high-end technology: Radios have been around for about 100 years, and most retailers would be appalled to have their stores referred to as shacks.

But a series of recent alliances with tech leaders such as Microsoft, Verizon Wireless and Sprint has paid off. Stock in the 80-year-old company has surged amid a generally poor market for tech companies and retailers.

Shares of the retailer, which sells everything from TV satellite dishes to speaker wire to remote-control toys, have surged 78 percent in the past two months, whizzing past the 22 percent gain and 38 percent loss of the more flashy electronics retailers Best Buy and Circuit City, respectively.

RadioShack sales increased 15 percent for the April through June period, compared with a 24 percent increase at Best Buy and a 14 percent increase for Circuit City. RadioShack kept up the pace in July, as sales grew 12 percent compared with July 1999. Circuit City and Best Buy do not report monthly sales.

"How great does a company like RadioShack look when it's continually doing the right things, and everybody else is falling by the wayside," Robinson-Humphrey analyst David Schick said.

What has RadioShack done right?

"They think outside of the typical retail environment," Schick said. "They're not afraid to commit a portion of their store to a service provider if they can see a high return."

While consumers and investors last year focused on online retailers, Fort Worth, Texas-based RadioShack continued to leverage the brand recognition of its massive network of 7,100 brick-and-mortar stores. The company estimates that 94 percent of Americans live or work within five minutes of a RadioShack store or dealer.

As part of this strategy, RadioShack struck deals with technology leaders Microsoft, RCA, Compaq Computer, Spring PCS and, most recently, Verizon Wireless. Each of these companies has, or soon will have, special sections in RadioShack stores to display its products.

Microsoft also made a $100 million investment in RadioShack.com, which will be featured on Microsoft's MSN Web portal. Beginning in November, Microsoft will have free-standing kiosks in each RadioShack store.

Leader of the pack
RadioShack shares have surged in the past two months while many other retailers have languished.
Company % change, 6/12 - 8/11/00
Radio Shack +71
Best Buy +23
Circuit City -35
Good Guys! -10
Sears -8
Target +9
Wal-Mart -3
Gap -16
Costco +11
Office Depot +13
Staples +10
Source: CNET Investor
In May, the company took another step when it changed its name to RadioShack and dumped Tandy--a brand that many computer buffs associate with the early days of the PC.

"I think it's absolutely the correct strategy of the company to employ given its store base. You know (there are) limited growth opportunities as far as square footage," said Peter Benedict, an equity analyst at CIBC World Markets. "This brings a branding awareness to RadioShack."

Having stores in strip malls across the country makes RadioShack particularly appealing to companies such as Microsoft, Verizon Communications, Compaq and Sprint.

"These companies are not in the retail business. There's no way they could match the points that RadioShack has, nor would they want to," Deutcsche Banc Alex Brown analyst John Glass said. "RadioShack has a store within a stone's throw of just about everyone in the country."

RadioShack stores may have lower ceilings and a tenth of the square footage of their competitors, but they carry a decided advantage.

"Do you really need to go to Home Depot and brave that parking lot?" Glass asks rhetorically. "Sometimes people don't feel like it because it's a huge hassle."

Much of the credit for RadioShack's revived strength has been given to Len Roberts, who became the company's CEO in January 1999.

"I think Len Roberts is to be credited with taking what was Tandy Corp. and focusing on what was the most valuable part of that company," said Peter Benedict, equity analyst at CIBC World Markets. "In addition, he has taken steps to improve productivity."

Despite the recent success, there are some concerns.

RadioShack faces some potential conflicts if its vendors become territorial. For example, Verizon Wireless and Sprint PCS could wish to be the exclusive cellular phone providers, causing a potential conflict, some analysts said.

"Their stores are only finite in size," Glass said. "As they continue to sign up vendors they definitely will face some constraints."