Radio Shack Posts Profits Despite Competition
MADELEINE BRAND, host:
If you take a stroll through the mall, you're bound to past stores that make you think, huh, I wonder how they stay in business. Well, here's a story about how one chain does it. Radio Shack reported a drop in sales this week, but it consistently posts profits even in these hard times. And it does so facing stiff competition from the likes of Best Buy and Target, as NPR's Wade Goodwyn reports.
WADE GOODWYN: In a spoof article written a couple of years ago for America's finest fake news source, The Onion, Radio Shack CEO Julian Day professed bewilderment at how his company was making a profit. You wouldn't think that people still buy enough strobe lights and extension cords to support an entire nationwide chain, Day supposedly said. But I guess they must or I wouldn't have this desk to sit behind all day.
Back in the real world, Julian Day has done anything but sit behind his desk since taking over the company three years ago. Instead he has cut and cut some more, slashing cost, paring away underperforming stores, getting Radio Shack prepared for a recession nobody seemed to know was coming.
Mr. MICHAEL BAKER (Analyst, Deutsche Bank): There's no doubt that they've done a good job in mind of lowering their expenses. So, yeah, I think Julian Day has done a very commendable job.
GOODWYN: Michael Baker is an analyst with Deutsche Bank. Baker says the Radio Shacks CEO went so far as to sell all the green plants to employees for $5 each, so the company wouldn't have to spend any more money on maintenance. With good cash flow, Radio Shack has accumulated nearly $900 million and that's allowing some home improvement of the non-vegetative variety.
Mr. BAKER: They're also spending some money in trying to spruce up their existing stores. They're certainly spending a little bit more money to try to make them more attractive.
GOODWYN: Radio Shack has gotten the big profit bump from the sale of digital converter boxes for analog televisions. But that market is drying up. GPS unit sales are also in decline. Radio Shack has shown nimbleness in moving from one hot gadget to the next, catching a sales wave for a quick profitable ride.
Unidentified Woman: Okay. And, sir, just enter your telephone number on this device.
GOODWYN: On a rainy weekday, the Radio Shack in east Dallas has only a few customers after lunch. A family pops in to buy a digital converter box and are out the door in under five minutes.
Unidentified Woman: Okay. And just verify your information right here.
GOODWYN: Instead of row after row of flat screen TVs, there are five on display. Radio Shack has some other qualities of your local auto parts store or perhaps an Ace Hardware. If you need something and don't necessarily know exactly what you should buy, a sales associate will tell you and go get it for you. Mita Sujan is a professor of marketing and consumer behavior at Tulane University.
Professor MITA SUJAN (Marketing and Consumer Behavior, Tulane University): The stores are relatively small and so, again, it's not an overwhelming environment to be in. And I think there's still enough people who aren't that tech savvy, the older consumer.
GOODWYN: And Radio Shack sells merchandise that has relatively high profit margins. Batteries, accessories, chargers, high end cables, the list goes on. Last week, the company signaled it intends to Livestrong by announcing it would sponsor Lance Armstrong's team next year. The idea is that in 2010, the great Texas cyclist will be standing on the top of the Tour de France podium with Radio Shack executives nearby clapping, cheering and telling each other, he's our man.
Wade Goodwyn NPR News, Dallas
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