Electronics retailer acts to halt 2 years of sliding sales


September 30, 1991|By Tom Steinert-Threlkeld | Tom Steinert-Threlkeld,Dallas Morning News

Dallas -- Double the size of stores. Let other companies'

brands onto the shelves. Put lots of "impulse" items at the checkout register. Add kiosks with electronic catalogs, so customers can go right to the video to see and print out information about parts and products.

Those are the seeds of a new Radio Shack as the nation's most widespread retailer of electronics tries to end two years of

sliding sales and to remake itself into a growth company with some sparkle.

"They're trying to rejuvenate the chain," said Dennis Van Zelfden, analyst with Rauscher Pierce Refsnes Inc. in Dallas. "The chain suffers from a lackluster image."

In moves that were not possible even two years ago, the Fort Worth-based firm has begun to tinker with its bread-and-butter recipe of selling only house-brand electronics in lots of small stores. In a series of wide-ranging experiments that may increase in frequency, company executives are seeking an improved formula for an era when the greatest sales growth is being achieved by superstores selling name-brand electronics at cut-throat prices.

"We're experimenting from a position of strength, not weakness," said Radio Shack President Bernard S. Appel. "None of this experimentation is a result of slowing sales."

There is no question that growth eludes Radio Shack.

The size of the chain, built rapidly in the '60s and '70s, has been static for years at slightly more than 7,000 stores. More critically, its sales are shrinking. When the company breaks out Radio Shack sales for the year which ended June 30, they are likely to be slightly less than $2.8 billion, down 3.9 percent from last year and 5.6 percent from two years ago.

But Radio Shack's need to "jump-start its business" is no different than that of any other consumer electronics retailer, said Dean Witter analyst Eugene Glazer.

"Consumer electronics sales have been under pressure; the consumer really has not been buying," Mr. Glazer said. "This is a universal problem being faced by consumer electronics retailers."

Out of the four big publicly traded consumer electronics retailers, only two -- Circuit City Stores Inc. and Good Guys Inc. -- made money last year. The other two, Best Buy Co. and Highland Superstores Inc., lost money.

But even though more than 50 million Americans shop at Radio Shack stores every year, the retailer still fights an image that it is primarily a source of batteries, electronic parts and accessories that can't be found elsewhere, analysts said.

L "The bigger-ticket retail has eluded them," Mr. Glazer said.

"I think there is a certain customer who would never buy at Radio Shack: He who really needs snob appeal to justify his purchase," said Liz Buyer, vice president at Cowen & Co., New York.

"Radio Shack's brands have never achieved such snob appeal.

"I don't know anybody who ever said, 'Gee, I just bought an Optimus stereo,' " said one Texas analyst.

Yet Radio Shack's sales may have plateaued because it continues to appeal to the same customers it always has. Mr. Appel acknowledges that Radio Shack's market research and experimentation have focused on existing customers, rather than on electronics buyers who shop elsewhere.

Nonetheless, even if it has plateaued, Radio Shack is by far themost profitable seller of consumer electronics. Appel likes to boast that Radio Shack's profits are greater than all its competitors combined. And he may be right.

Using house brands, such as Realistic, Optimus and Arrow, means that customers can't easily compare prices with name-brand products, such as Panasonic or Sony, sold by competitors. Plus Radio Shack often does its own manufacturing and distribution, allowing the capturing of intermediate margins along the way. When others make products for Radio Shack, the sheer volume of its purchases helps drive down negotiated prices.

As a result, Radio Shack historically has recorded a gross profit margin, before overhead, taxes and interest expenses, of more than 50 cents on the dollar for the products it sells. By contrast, a competitor such as Circuit City is lucky to record a gross profit of 30 cents on the dollar.

"It's like a gold mine in terms of the profits and cash flow it does generate for Tandy," said Mr. Van Zelfden, referring to Radio Shack's parent company.

But there is pressure nonetheless to bring name brands into Radio Shack stores. Mr. Glazer points out that if selling name brands produces higher turnover of inventory, Radio Shack can still produce a greater return on its investment in electronics products.

There's plenty of room for improvement there. Radio Shack typically has turned over its inventory three times a year, where ,, TC Circuit City inventory turns over six times a year, Best Buy seven times and Good Guys eight times.

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