RETOOLING RADIO SHACK Electronics retailer acts to halt 2 years of sliding sales

THE BALTIMORE SUN

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.

But Radio Shack is only gingerly testing the idea of putting name brands such as Panasonic in its stores. The first experiment involves putting high-priced audio products normally found at another retail chain run by Tandy Corp., VideoConcepts. The name-brand products will appear only in remote markets and will not overlapin price with audio products sold under Radio Shack brands, Mr. Appel said.

Some name-brand products also are likely to show up near the checkout counters of 750 Radio Shack stores. These will be "impulse" items, such as wet-dry shavers or leather carrying cases with calculators, that will be unadvertised, relying solely on foot traffic to spur sales.

Its mainline stores will even try to turn its house brands into "name brands." For instance, Radio Shack has now affixed the Memorex brand name, which Tandy owns, to its video cameras. There's even the possibility of a massive change in the size of Radio Shack stores themselves. Traditionally, Radio Shack has tried to be the convenience store of consumer electronics, fitting into 2,400-square-foot pockets at malls and shopping centers everywhere.

In the past, that earned the stores reputations for being cramped and cluttered, particularly when they appealed largely to electronics buffs who "liked the clutter. They were comfortable with it," recalls Chris Chilton, a Radio Shack manager before the company began its recent push to remake its outlets into stylish "technology stores."

Now the Tandy Corp. division will try out spacious "super-Shack" stores that span 5,000 square feet.

The company is even using technology to supplement its traditional printed catalog, which has served as its basic promotional tool for more than half a century.

At its store in Fort Worth's Tandy Center and others elsewhere, Radio Shack is installing TandyVision kiosks that combine compact disc storage, video imagery, spoken instructions and touch-sensitive screens to let customers sort through vast arrays of small parts, such as record player cartridges, or to get advice on do-it-yourself projects, such as installing telephone jacks. Customers can print out instructions. Printouts on products can be taken to the cash register, where a salesperson can ring up the order.

In fact, all this experimenting is driven by technology in the stores, rather than slowing sales, Mr. Appel said.

Where sales personnel once wrote orders by hand, computer terminals were installed in all stores by the end of 1989 to gather information about every sale. Those point-of-sale terminals mean Appel now spends a few minutes every morning reviewing Radio Shack sales from the previous day, down to individual products or stores.

"We couldn't run these tests before we had POS [point-of-sale]," Mr. Appel said. "A test used to take six months. Now it takes six days."

Which means that remaking Radio Shack will be an ongoing event, with the ability to do more frequent experiments speeding up the process.

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