If consumer-electronics retail giant Tandy Corp. has its
way, the name "RadioShack" will bring to mind cable modems and home networks,
and not just remote-control cars and replacement batteries.
Over the past several years, RadioShack has been shifting
its focus to electronics services so that it would no longer have to try to compete with
other top consumer-electronics retailers, like Best Buy Inc. and Circuit City Stores Inc.,
on the basis of price and product selection.
The chain is adopting the tag line, "America's
Connectivity Store," to highlight its new emphasis on telecommunications services,
ranging from wireless-telephone and digital-subscriber-line services from Sprint Corp. to
direct-broadcast satellite programming from DirecTV Inc.
Its sights are clearly set on cable, as well. RadioShack
expects to announce a cable-modem-marketing partnership with a top MSO "soon,"
vice president of strategic alliances Mark Stanley said.
There's no reason to believe that such an MSO partnership
will be limited to high-speed Internet access. Even though hardware specifications have
not yet been finalized for digital set-top boxes that would be sold at retail next year,
RadioShack could lease digital boxes out to consumers on behalf of local cable systems,
much in the same way that it sold PrimeStar Inc.'s satellite programming without selling
the hardware itself.
"Our mission statement is to demystify technology to
the mass market," Stanley said. While some people are comfortable enough with
technology to order new products and services online today, he added, "a huge
majority of people want to sit down and talk to somebody face-to-face, and to see and feel
whatever product they want to buy."
SERVICE FEES CARRY HIGHER MARGINS
RadioShack sees itself as a service provider, and it hopes
to make more of its profits through installation and subscription residuals, rather than
from the often-thin margins on consumer-electronics hardware.
Between its wireless-phone, paging, Sprint Corp.
long-distance and DBS accounts, RadioShack earned $34 million in service residuals last
year, according to the company's annual report.
Last month, Tandy agreed to pay $75 million in stock to buy
a national cable- and telecommunications-installation company, AmeriLink Corp., which
already owns a fleet of about 1,400 trucks, and which has a presence in every major
metropolitan market across the country. "It gives us an infrastructure from which to
build," Stanley said.
Goldman, Sachs & Co. analyst Lou Kerner said it would
make a lot of sense for MSOs to seek installation help for their new broadband services.
"There's a lot of consumer demand out there,"
Kerner said. "The negating factor is the provisioning of the service -- the
installation -- which necessitates a truck roll today. Anything that would facilitate the
ability to ramp up installation would help the MSO."
In addition to helping MSOs meet demand for new services,
RadioShack can help to fuel that demand through in-store demonstrations.
"We really think that with broadband, you've got to
see it to believe it," Stanley said. "As people come in and see the speed and
the new content, that will accelerate the market."
Stanley said he hopes to ultimately have all RadioShack
stores wired to demonstrate high-speed broadband services.
But RadioShack's version of broadband won't be limited to
cable products: The chain sold 335,000 satellite systems last year, according to Tandy's
annual report, and it plans to sell 400,000 more this year.
By the middle of next year, RadioShack plans to have as
many as one-half of its 5,000 company-owned stores hooked up to demonstrate DSL service
through a partnership with NorthPoint Communications Inc.
Except where Sprint's ION (Integrated On-Demand Network)
DSL service is offered, though, that leaves one-half of the chain's company-owned stores,
plus a few thousand franchised stores, out of the DSL loop for now.
This is a marketing challenge that's likely to be magnified
as retailers and MSOs try to negotiate partnerships that don't necessarily cover all of
their respective service territories.
MSOS WILL NEED RETAIL TIES
Retail will be an important battleground for MSOs someday,
Kinetic Strategies Inc. president Michael Harris said. But before cable operators can go
retail, he added, "You've got to have [cable's new service] operations in place to
meet demand."
With RadioShack, Tandy brings more than 7,000 retail
storefronts to the table -- more than any other U.S. consumer-electronics chain can claim.
Even with all of the recent mergers, acquisitions and
system swaps, no single MSO can yet claim a national service presence. Most major
metropolitan markets are still shared by several MSOs, creating challenges for retailers
that wish to promote specific programming prices or packages.
"It's a huge marketing challenge," Stanley
admitted, "but RadioShack has a history of developing multiple strategies" for
services and product categories when necessary.
For example, although Sprint PCS is a primary partner for
wireless-phone service, RadioShack has also developed relationships with 41 different
cellular-phone companies to fill in where Sprint wasn't available, Stanley said.
Like it enjoys now with its cellular-phone partners,
RadioShack is looking to cable operators for a share of ongoing service revenues --
something MSOs have been reluctant to part with over the years.
Some analysts predicted that those kinds of financial
details could delay -- or even derail -- cable's move to retail.
"Having satellite on the one side and cable on the
other on store shelves puts cable at parity," Sanford C. Bernstein & Co. senior
research analyst Tom Wolzien said. "Retail becomes more of a defensive move."
Wolzien predicted that digital cable would more than hold
its own when compared with DBS. The only thing missing would be certain sports packages,
such as the "NFL Sunday Ticket" out-of-market National Football League package,
which is currently carried exclusively by DirecTV.
"The real issue is in the number of residual payments
RadioShack wants in return," Wolzien said, adding that it's too soon to tell whether
it would be worth the cost to MSOs.
Stanley recommended that cable operators keep an open mind
when it comes to considering retail relationships. "It's difficult," he
admitted, "because they're coming from a monopolistic market and moving to a
competitive market."
OPPORTUNITY IN CONFUSION
Retail won't be the only outlet for signing customers to
new broadband services, Stanley predicted, "but we'll get a piece of it. Where
there's confusion, we see opportunity."
Cable may be better off doing a deal with America Online
Inc. to market cable modems than selling through retail, Wolzien said, adding, "If
AOL sells it, you already have people interested in the service."
Of course, MSOs will also want to expand their customer
base to include consumers who don't yet know that they're in the market for broadband
services -- and what better place to pitch them than their local mall or shopping strip?
"RadioShack is ultimately good at selling directly to
the consumer," Kerner said. "And one of the great truisms with broadband is that
to use it is to want it. Having distribution in consumer-electronics stores helps the pull
by consumers. The majority of people today have never seen broadband."
"The more people who market cable, the better,"
agreed Dove Associates managing director Bob Davis. He pointed to Ameritech New Media
markets, where the size of the cable-television audience increases once a wired competitor
enters a town.
Still, Davis warned that an MSO might be giving something
up if it hands its installation work over to another entity.
"The truck-roll business for cable operators is not a
very profitable business, but if you give that up, you give up your customer
contact," Davis said. "It's a great opportunity for a cable company to build a
relationship with a customer, to educate and even to upsell them."
MSOs could also lose out on an opportunity to have their
own branded trucks serve as moving billboards, as they bring new services to neighborhoods
throughout their systems.
Stanley predicted that more of RadioShack's installation
revenues would come from service-provider subsidies and less directly from consumers,
especially given the promotional atmosphere surrounding new service installations today.
He added that such a business model shouldn't be a
challenge for cable operators or phone companies that already subsidize the cost of
installations.
Although there may be some move toward cross-training
installers, Stanley predicted that there would always be some level of specialization
among the company's technical team.
"Those who can do circuit-level work on a motherboard
might not be comfortable crawling under a house to wire cable," he said.
Although plug-and-play cable modems and home networks will
be a factor in the future, Stanley said, "We see a big trend in the consumer
marketplace in the other direction."
DO-IT-FOR-ME ATTITUDE
In the past, there was a big market for do-it-yourselfers,
Stanley said, "but now, there's a trend to DIFMs -- do-it-for-mes. They don't want to
learn about the technology -- they just want you to tell them which button to push."
As home networking comes into play over the next few years,
the DIFM attitude is likely to increase.
Harris said that even cable operators with solid teams of
installers might want to farm out jobs that require networking cable modems between
multiple personal computers within a home.
RadioShack does not plan to limit its installation business
to broadband products. Stanley said the company also sees a potential market in installing
home-theater and home-security systems, as well as PC networks.
If the consumer market adopts high-definition television,
RadioShack will be there, too. Through a recently announced marketing partnership with
Thomson Consumer Electronics, RadioShack will market digital televisions and set-top boxes
under the RCA brand.
Stanley said RadioShack stores will display HDTV wherever
they have the physical space to do so. The remaining stores will offer the hardware for
sale -- and installation, of course -- without a live feed to show their customers.
