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Edmondson: First and foremost, unique stuff they don't have. Second, we take the time to actually explain the stuff to you. That's not something against Circuit City or Best Buy. They've got great business models, they're just different. Our business model starts with 99% of American households buying at least one thing from us every three years -- and it's one of those little things. What happens is we provide a high degree of customer service for a $3 transaction, and the customer then migrates out to another category. We'll spend a lot more time for $30 than for $3. And then, for $300, holy Toledo! We'll spend lots of time. Our culture is really set up so that we're kind of working with the force of human nature.
TMF: You guys had a big day today. It was the official changeover, for the name and the ticker. I wonder if you could talk about how the change will be reflected in your aims as a business?
Edmondson: Let me just clarify what RadioShack does and what we want to do and be -- and let me separate RadioShack from Tandy Corp. I think what RadioShack does and what Tandy Corp. does, or did, are two different things.
Tandy Corp. was a multi-format, multi-business conglomerate that was involved in all kinds of different businesses; over the years -- everything from the leather business to nurseries. We owned Pier 1 Imports (NYSE: PIR). We owned a department store chain. We've done a lot of different things.
RadioShack is a technology company highly focused on demystifying technology for the mass market, revolving around three very important areas.
We are on the cutting edge of mass consumer electronics technology, not necessarily segment technology.
One, the business of connecting things: all the wires, cables, connectors, etc., that you need to make technology work and to make it work with each other. We always have been famous for that. What we became famous for in the 1990s was connecting people, primarily through wireless technology. We sell more wireless phones than anyone in the US. This year we'll sell a million units.
The thing that we are becoming famous for and that we'll focus on over the next five to ten years is the business of connecting places, "places" primarily meaning bringing broadband and the Internet into homes and small offices and integrating all that technology in the home.
TMF: How much do you think the customer's perception of RadioShack is in line with how you want the company to be perceived?
Edmondson: I think it depends on who the consumer is. A lot of people don't think of us as the place to get Internet connectivity. However, when you ask the questions "Where do you think you ought to go?" [or] "Who would do this kind of thing -- come into your home and network it together?" for the mass market, the answer is RadioShack. It's like if you ask "Where would you go for a new fence?" Sears (NYSE: S) gets a lot of credit for that.
TMF: I want to get back to some of the services that you're offering, but first I want to ask about some of the products that you have in your stores now. I'm wondering how the challenge of putting together a merchandise mix changes now that you've got all kinds of new products being introduced for consumers?
Edmondson: One area I think is good for us -- because we have so many stores, we have 7,000 -- is in terms of putting [new products] into the stores. We really need it to establish a little bit of a history before we put it in our stores. In some ways that provides an advantage for us, because we don't have to be the first guy on the block to have it. But, with our scale and size, once we get it we're able to get into it very quickly and establish a market leadership position. We are on the cutting edge of mass consumer electronics technology, not necessarily segment technology.
TMF: You talked about your first category, connecting "things." How much growth can investors expect to see from your manufactured product lines -- your plugs, and connectors, and things like that?
Edmondson: It's a fairly stable business. It has traditionally grown about along with the population. However, I think there is a new opportunity emerging in the business-to-business space. We source a lot of the stuff that businesses use -- maybe the guy who repairs the elevators, or is the general maintenance kind of person, in large buildings or [for] corporations around the country -- and the Internet is providing some interesting opportunities for us in the B2B space in terms of getting our products out to customers.
In fact, I will tell you the B2B part of our Internet site, right now, is a lot more promising from a revenue side than the consumer space is. Consumers really tend to want to come there and get information but, because the store is so convenient, they end up going to the store.
TMF: You talked a little bit about customers wanting to come in and get information. How have you guys had to adapt in terms of beefing up training and the capabilities of your employees?
Edmondson: It's always a challenge, but there are a number of things we've done fairly successfully. The first is that we've got a very extensive training certification program that is tied to the employee's compensation. So, the more certified you are, the bigger percentage of what you sell you get to keep. It's a compensation and reward system that has worked very well for us in terms of people increasing their own personal knowledge and retaining new information.
The second thing is we have, literally, a full broadcast studio in Ft. Worth, Texas, with three studios. We're able to broadcast directly to 147 training centers across the country. An interesting thing that's just happened as a result of our relationship with DirecTV is that we're now able to broadcast directly into the store with DirecTV, so we get down to the individual associate level.
The third thing we're doing is making a lot of investments in information systems that are distributed at the store via the Web. RadioShack [stores] not only get access to RadioShack.com, but also RadioShack Online, which is our intranet. We have tons of information, but it can't all be retained. We're organized in a way that we move from a retention form of training to a retrieval form of training.
TMF: Could you talk a bit about how you see your revenue breakdown between your various products and services today and how you might see that changing in the next five years or so?
Edmondson: Five years, that's a long time in the technology business. I will say that if you go back a couple of years ago, services were nonexistent. This year, services will represent about 7% of our total business. Computers will probably stay pretty solid at about 10% to 12%. The accessories and parts business is down to about 28% today, because other parts of the business are growing faster -- a couple of years ago it was around 34%. The communication business was about 20% of the business; today it's about 33% of the business. We see that growing.
The audio/video business, as a result of really bringing entertainment through satellite into the home, is about 15% of the business today, and we see that part of the business really growing, especially after next week with the launch of the RCA digital entertainment center.
TMF: If I were to say to you, here are Circuit City (NYSE: CC), Best Buy (NYSE: BBY), and RadioShack, what would be the main differentiating factor you would want a shopper to take out of a discussion of those three?
I'm not sure that the name 'RadioShack' is supportable outside the U.S... to the same degree as some other brands.
In [our competitors'] situation, you kind of come to the store for the $300 item, so the degree of time they can spend with you on the $30 item or the $3 item -- for the $3 item, they actually refer their customers to us. We just have a very different business model. So the thing we're most famous for is taking the extra time with customers to help them get comfortable and understand what they're doing and what they're buying from us.
TMF: One thing that I saw in your 10-K is that your international exposure, at present, is pretty light.
Edmondson: It's not on the top of our priority list, in terms of international expansion. We see lots and lots of opportunities as we continue to reposition RadioShack in the U.S., and there's only so many hours in the day. In order to get the kind of growth that we need, we don't really have to expand internationally.
Second, I'm not sure that the name "RadioShack" is supportable outside the U.S., certainly outside of North America, to the same degree as some other brands. And third, there are very complex electrical standards around the world, and so if we ultimately get serious about international, it will probably be a combination of the Internet and fulfillment partners in those countries.
TMF: I wonder if there's anything else you might want to add that we didn't get to today?
Edmondson: The only other thing that's important, that differentiates us, is this issue of retained customer ownership -- recurring connectivity revenues. If you think about it, in 1997 we delivered about $8 million worth of profit in recurring revenues. This year, we'll deliver something between $92 million and $102 million of recurring revenues, and that's because we're not just a retailer, we're a retail/service concept and we retain a percentage ownership of that customer on a monthly basis. We get paid as long as the customer uses the product.
TMF: With that in mind, how do you go about choosing your partners for some of those ventures?
Edmondson: The process of choosing partners is pretty complex, but I'll tell you what the most important thing is: If you're going to have a strategic alliance, it's got to be just that. It has to be central to the strategy of the company that you're going to get in business with, [so] they can't achieve the same level of business without you than they can with you. We've fulfilled that role with Compaq (NYSE: CPQ), we've fulfilled that role with Sprint PCS (NYSE: PCS), we are fulfilling that role with RCA. And frankly, even in the Internet space, I believe that if you ask [Microsoft's (Nasdaq: MSFT)] Bill Gates or Steve Ballmer, they really believe that the democratization of MSN will come as a result of their involvement with RadioShack.
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