| BUSINESSWEEK ONLINE : MARCH 1, 1999 ISSUE | ||||||||
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| THE CORPORATION
Cable, Phone, Internet: Just Call...Radio Shack? Tandy's boss is betting big on plans to wire the high-tech home Leonard H. Roberts wants to sell you the panoply of consumer electronics and telecommunications gadgets needed to plug into the Information Age. The new chief executive of Tandy Corp. (TAN) also wants to come out to your home to install and service them. One day in the not-too-distant future, he says, Tandy's ubiquitous RadioShack chain will be your one-stop shop for new-millennium technology. ''We want to be known as the home connectivity store,'' says Roberts, who took over as CEO on Jan. 1. The what? ''Home connectivity,'' says Roberts, is all about making it easier for even the least technology-savvy household to integrate its Internet, cable or satellite TV, and local- and long-distance calling services. With technology's increasing complexity, installing all these services and making them work together is not easy. ''Everyone's building the big engines, but no one's building the tracks,'' he says. ''We're building the tracks.'' His goal is to grab as much as 10% of the nascent market for high-tech home installation and integration services. Income would come from installation and repair, and also from commissions on selling the products and services. Although the market is unproven--with few of these technologies in the average home today--Roberts says RadioShack can accelerate their adoption, ''just as we did in the '70s with the CB radio, in the '80s with the personal computer, and in the '90s with wireless and satellite.'' NEW FOCUS. His vision is a stretch for those who think of RadioShack as mostly a purveyor of cheap electronic dodads. Indeed, it might be a pipe dream if it weren't for the surprising turnaround the CEO has already engineered at the 7,000-store chain. In the six years since Roberts came in to run the RadioShack division, Tandy has slimmed down, exiting money-losing ventures such as consumer-electronics superstore Incredible Universe and Computer City to focus entirely on RadioShack. And under Roberts, RadioShack itself has revived. Analysts expect the company to report fiscal 1998 earnings on Feb. 25 of about $242 million, up nearly 12.5% over the previous year on sales up 8%, to $3.6 billion. Investors have taken notice, pushing Tandy's stock up 39%, to 52 7/8, from a recent low of 38 in December. Once-vocal critics of the company, including investors and franchisees, are now singing its praises. ''Roberts knew what needed to be done to reposition RadioShack,'' says Matthew D. Upchurch, whose family is one of Tandy's largest shareholders and only two years ago was one of its unhappiest. ''I'm excited about everything he's planning to do.'' The CEO, who had spent his career at food and restaurant companies before moving to RadioShack, found this success by refocusing the retailer on service. Junking its longtime slogan ''The Technology Store'' in favor of a more customer-focused approach, he added services like repairs, an order-by-phone gift delivery, and an in-store kiosk for ordering 100,000 hard-to-find items. Analyst David C. Childe of Morgan Keegan & Co. estimates that the repair service alone has added $80 million to $100 million a year to Tandy's top line. RESIDUALS. Existing products were improved or replaced. RadioShack's core business--the cables, connectors, and batteries that provide 45% of net profit and 80% of store traffic--was shored up with promotional programs and a battery ''store within a store.'' And though private-label products remain 50% of sales, Roberts abandoned the policy of only selling house brands. Since 1996, RadioShack has been pushing everything from Prime-star satellites to Sprint cellular phones and Compaq PCs. Today, Sprint (FON) and Compaq (CPQ) boutiques inside stores have grown to 38% of Tandy's sales, making the chain a major player in those brands. ''RadioShack is hugely important to us,'' says Sprint COO Ronald T. LeMay. Early this summer, RadioShack is expected to replace its poorly performing private-label, audio/video consumer electronics, with either RCA or Sony Corp. (SNE) products. The new vendors and the focus on service have created an entirely new revenue stream for RadioShack: residual sales. If RadioShack sells a customer Sprint PCs service or Primestar satellite service, for example, the company not only pockets a percentage of the sale--it also gets a chunk of every monthly bill, which now averages $40 a pop. Those monthly residuals, says Roberts, are ''pure profit.'' Last year, they added $30 million to the chain's earnings before interest and taxes. By 2000, Roberts estimates that will have grown to $100 million--the equivalent of 400 new stores per year. Outsiders are impressed. ''Roberts has done a great job of constantly finding ways to link into consumers' monthly bills,'' says George F. Sutton, an analyst with investment bank Dain Rauscher Wessels. Thanks in part to residuals, sales at stores open at least 12 months should increase 7% this year, analysts say. Now, Roberts is hoping to up the ante on competitors such as low-cost superstores Best Buy Co. (BBY) and Circuit City Stores Inc. (CC), direct-mail outfits, and the Internet by adding even more services with his push into ''home connectivity.'' Since he cannot count on new stores for growth--according to Tandy, some 94% of Americans already live or work within five minutes of one of RadioShack's 7,000 stores--Roberts figures the chain's momentum will come from selling both hardware and services, then installing and linking them together inside a customer's home. ROLL 'EM. To do that, some 10,000 white RadioShack installation vans should hit the road over the next three to four years. Testing began in a number of undisclosed cities in January, offering PC, satellite, and home-theater installation, as well as consumer-electronics repairs and telecom-systems upgrades. Tandy won't say how much it plans to invest, though it does expect capital spending to remain about $100 million a year. The program is expected to intensify later this year as Sprint rolls out its constantly connected Internet service, Integrated On-Demand Network, to residential customers. ION will provide high-bandwidth lines that allow customers to send faxes, hold videoconferences, and make phone calls all from one phone line. ''No one else is doing what RadioShack is doing,'' says analyst Scot Ciccarelli of investment bank Gerard Klauer Mattison & Co. ''This is their market to take.'' Still, getting fleets of service vans up and running quickly won't be easy: Tandy faces some pretty daunting logistical problems. Roberts plans to franchise out as much as half of the business, in part because franchise fees will help offset training costs. But that also increases the risks that RadioShack could lose control over the quality and consistency of its service. And even if Roberts' vans hit the streets, financial success may not be as quick or assured as he would like. RadioShack has yet to earn a dime from this new arena, but he boldly predicts an additional $100 million a year in residual earnings from the business, starting in 2002. So far, analysts are comfortable with that figure, which is based on an assumption that 1 million users will order many more services through RadioShack. But to achieve his target, those users will have to pay an estimated average monthly service bill of $150. That's more than three times the average $40 monthly bill they currently pay. There will be competition, too. Although they aren't yet targeting this business, Best Buy and Sears, Roebuck & Co. (S) have installation and repair units in place for other products and are looking into this market. And RadioShack's partner, Sprint, is not going to be the only company providing integrated communications in the home. RadioShack is in negotiations with Road Runner and At Home Corp. (ATHM) to offer its cable Internet services, but stiff competition in the overall field is likely from AT&T (T), the Baby Bells, and other cable providers. If Roberts has succeeded in bringing RadioShack back to life, he's still got a ways to go before he transforms it into the Maytag Man for the Internet Age. By Stephanie Anderson Forest in Fort Worth, with De'Ann Weimer in Chicago and bureau reports _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ _ BACK TO TOP |
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