RadioShack Thinks Small

The holiday season's here again, and digital cameras are topping the list of search requests on the shopping section of Yahoo! (Nasdaq: YHOO  ) . This kind of news is great for RadioShack (NYSE: RSH  ) , as the company will likely piggy-back on the demand for all manner of high-priced "gotta-have-it" items -- if not in sales of the products themselves, but the accessories that enable and enhance them.

On its website, RadioShack tries to dispel the notion that the company isn't a major technology retailer. For instance, the website shows that an estimated 1 million customers visit a RadioShack store every day, and that every three years, about 99% of American households are represented among visitors to its branches. Although RadioShack's sales figures don't show high demand for big-ticket items, consumers are nonetheless beating a path to the "Parts, Tools & Wire" section of RadioShack stores across America.

Before shrugging off a company that hawks batteries for a living, consider this: RadioShack reported that wireless, accessories, and batteries accounted for about 55% of sales revenues in 2002. Additionally, the company's current profit margin (for the trailing 12 months) is 6%. This margin looks great when compared to some competitors -- it's actually double that of Best Buy (NYSE: BBY  ) . And forget about Circuit City (NYSE: CC  ) , which isn't even currently profitable.

RadioShack knows what its customers need, too. For instance, on the Yahoo! Shopping site, there's a RadioShack's advertisement targeting customers looking for accessories. We all know how frustrating it can be to bring a gadget home from the store, only to find we need a cable, adaptor, or yes, even a battery. Well, not to worry... there's always a RadioShack nearby. And the company seems to be conveying this message effectively.

In its 2002 annual report, RadioShack states that it sold hundreds more types of accessories and batteries for digital end-products than it did the year before. Pretty amazing, considering that the company doesn't actually carry many of these end-products. You might purchase your Sony (NYSE: SNE  ) camcorder or Hewlett-Packard (NYSE: HPQ  ) printer elsewhere, but chances are, you'll end up at RadioShack eventually looking for a battery or inkjet cartridge.

But even RadioShack knows that relying on small potatoes is no way to throw a banquet for investors. Best Buy and Circuit City may be trailing by some financial measures, but they hold strong market positions because they're known to carry a wide, diverse line of high-end technology products. Additionally, Best Buy and Circuit City haven't exactly ceded the sale of accessories to the competition. Take, for example, CDs and DVDs: What better (and more profitable) way to complement that purchase of a DiscMan or DVD player?

While competition abounds, RadioShack stands to meet it head-on. The company continuously explores new ways to be meaningful in the lives of ordinary American households. Once an outfit that sold equipment to ham radio operators and ships' radio officers, RadioShack has proven adept at evolving. I mentioned earlier that sales in the wireless segment of the business contributed significantly to the company's top line. RadioShack now has strategic partnerships going with Sprint PCS (NYSE: PCS  ) and Verizon Wireless, a subsidiary of Verizon Communications (NYSE: VZ  ) . Prominent retail displays in every store indicate that the company is pushing these cell phone services hard. And with new "home-to-cell" rules now in effect (consumers can transfer their home numbers to cell phone providers), cell phone sales may jump as folks yank their landlines and take their numbers with them on the go.

The company's efforts seem to be working. For the nine months through this September, sales rose 3% to $3.16 billion. Investors, too, are paying attention. If you had invested in the stock at the beginning of this year, your stake would have grown by about 75%.

Will meeting routine electronics needs at low prices continue to help RadioShack succeed? With adaptable management and an eye on the future, it's a good bet it will. An up-and-coming part of the business is the sale of routers and PC cards from, respectively, Linksys -- a privately held division of Cisco (Nasdaq: CSCO  ) -- and Microsoft (Nasdaq: MSFT  ) .

As for next year, who knows what new gadget we'll all be buying? But it's a safe bet there will be a RadioShack close by to help us get it up and running.

Yvonne Pesquera is a freelance writer and bought a $7 rabbit-ear TV antenna at RadioShack. You can email her at reply_yvonne@hotmail.com. The Motley Fool is investors writing for investors.


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