Why RadioShack Will Still Never Be Great Again
The small-box retailer of consumer electronics began offering its own wireless plans on Wednesday. Teaming up with Leap Wireless' (LEAP) Cricket to offer RadioShack No-Contract Wireless may seem like a big step for the beleaguered chain, but it's really nothing more than slapping a RadioShack name on the Cricket service.
Everyone loves the premise of contract-free carrier plans, but the downside here is that you're paying full price for a phone.
Many smartphone owners may not realize that Apple (AAPL) gets roughly $650 for every iPhone sold. The customer may be paying just $200 for it up front, but the wireless carrier is paying Apple hundreds more for the device, knowing that it will more than make the cost back over the life of the two-year contract.
The only smartphone that is presently available for the RadioShack No-Contract Wireless plan is the $150 Huawei Mercury Ice. It's got reasonable specs as an Android device retailing for $150, but keep in mind that it's not one of the higher-end devices selling at similar prices but subsidized by the carriers.
So why go to RadioShack when dealing with Cricket directly offers a broader line of no-contract devices? Come to think of it -- why would you go to RadioShack at all?
It's Been a Long Way Down
It's been nine months since RadioShack was the subject of my original "Why RadioShack Will Never Be Great Again" article. Since then, the stock has shed 77% of its value.
I'm not happy to have been right. I have fond memories of hitting up the store in its prime. There seemed to be a RadioShack in every strip mall, always there to supply batteries, cables, and other electronics and parts.
Then the Internet came.
Realizing that its original consumer electronics business was fading, RadioShack shifted to a mobile strategy. It would become a one-stop shop for the leading carriers, giving phone seekers greater variety than they would get at an individual carrier store.
What RadioShack probably never expected was that margins wold get obliterated. Relying on a few big-ticket sales instead of the more frequent small-ticket purchases also meant that store traffic shriveled up. After you buy a smartphone, why go back to the store?
Some Concepts Just Can't Be Recharged
RadioShack's just running out the clock right now. It has surprised analysts with back-to-back quarterly losses, and Wall Street doesn't see a return to profitability on an annual basis in the near future.
Income investors used to be rewarded for their patience with a meaty dividend that ballooned up to a yield of nearly 14% as the stock price fell, but even that treat is toast. After consistently shelling out distributions for 25 years, RadioShack suspended its payouts this summer.
It's easy to see why RadioShack is being protective of its money. The retailer is going to need it, and not just because it has $375 million in long-term debt that it will have to refinance when it comes due next summer.
The equally desperate Best Buy (BBY) is taking a page out of the RadioShack playbook by ramping up the expansion of its small Best Buy Mobile stand-alone stores.
RadioShack still has its stores -- and it's operating kiosks at cheap-chic discounter Target (TGT) -- but the "one-stop shop" model has been exposed. Once a customer picks a carrier, it's the telco giant dealing directly with the handset user. The incentives to remain with a carrier are too great.
Sure, some will argue that this is why RadioShack is rolling out its own service this week. Unfortunately, it's a weak private-label attempt by a retailer that appears to be on borrowed time.
When's the last time you walked into a RadioShack?
Think about that, and then come to your own conclusion about the company's chances of returning to its former glory.
Longtime Motley Fool contributor Rick Munarriz does not own shares in any of the stocks in this article. The Motley Fool owns shares of RadioShack, Apple, and Best Buy. Motley Fool newsletter services have recommended buying shares of Apple. Motley Fool newsletter services have recommended creating a bull call spread position in Apple.