It's an understatement to say that RadioShack (OTC:RSHCQ) has run upon some tough times. After losing huge market share to electronics-focused big-box retailer Best Buy (NYSE:BBY) and the expansion into electronics by retailing goliaths Wal-Mart and Target, RadioShack was simply unable to compete on scale and selection. Eventually, the company became known as the place you go to find an odd connector or soldering kit rather than the newest technology.
It was hard to maintain a large store footprint selling the electronics of yesteryear, and RadioShack declared Chapter 11 bankruptcy, effectively ending talk of a turnaround among long-term shareholders. But unlike a Chapter 7 filing, in which a company ceases operations, a Chapter 11 allows the company to restructure its business. As a condition of the bankruptcy filing, the company will close nearly 1,800 stores by the end of March. However, if one man's trash really is another man's treasure, Sprint (NYSE:S) CEO Marcelo Claure is looking opportunistically at the situation. His company plans to transform roughly 1,750 former RadioShack stores into a Sprint/RadioShack joint retailer -- more than doubling Sprint's brick-and-mortar footprint.
Smart storefront expansion
According to the new agreement, Sprint will essentially operate a store-within-a-store strategy by occupying roughly one-third of the physical space in these former RadioShack-only locations. However, the new signage will be co-branded, with Sprint being the first-named company. Essentially, this is a store-within-a-store strategy on steroids, unlike the Samsung Experience Store in Best Buy locations that commands a much smaller percentage of overall square footage and has little outside signage.
And that's important. In addition to price and coverage, many wireless customers want the ability to talk directly with a customer-service and sales agent -- particularly the hobbyists who still frequented RadioShack. Claure said that "Sprint and RadioShack expect to benefit from operational efficiencies and by cross-marketing to each other's customers."
A win for both businesses?
As Claure said, this isn't just a win for Sprint. The deal probably saves RadioShack from closing more stores as Sprint takes over the leases, allowing RadioShack a larger footprint than it could achieve on its own. So RadioShack will benefit from increased foot traffic as Sprint grows future subscribers and as current subscribers come in for service, and it will benefit financially from having lower overhead costs in return for giving up the primary spot in signage and one-third of its retail space. Last quarter, Sprint claimed a combined total of 440,000 postpaid and prepaid net additions, so there should be no shortage of people coming through the doors.
On the other hand, it's important to note that this move isn't a panacea for either company. Sprint still finds itself in a tough situation with coverage issues, and RadioShack still finds itself as without a strong plan going forward. But at least the new SprintShack seems like an idea with some interesting possibilities for both companies.