Radioshack Corporation Business Information, Profile, and History

Company Perspectives:

Under the brand position, 'You've got questions. We've got answers,' RadioShack's mission is to demystify technology for the mass market. In extensive research, thousands of Americans cited the patience, knowledge and integrity of RadioShack's 25,000 sales associates making RadioShack America's favorite and most trusted store for electronic products and services.

RadioShack is guided by a vision centered around four key goals: to be the most admired retailer in America; to lead our industry in shareholder return; to be an outstanding corporate citizen, both locally and across the nation; to be the best company to work for in America.

History of Radio Shack Corporation

RadioShack Corporation--known as Tandy Corporation from its founding in 1960 until mid-2000--is one of the largest consumer electronics retailers in the United States. Forming the company's core operation are the 7,100 RadioShack stores located throughout the country. The stores feature two main categories of goods and services--electronics parts and accessories, and telephones and telecommunications accessories&mdash well as audio and video equipment, satellite systems, personal computers, and other electronics products. RadioShack has partnerships with a number of major consumer electronics and computer companies, including Sprint Communications Company in the area of telecommunications; Compaq Computer Corporation, whose Compaq brand is the exclusive computer brand sold at RadioShack; Thomson Multimedia, for a line of RCA-branded digital audio/video products and services; and Microsoft Corporation in the area of Internet access as well as the radioshack.com e-commerce site. RadioShack Corporation also operates eight manufacturing plants in the United States and China that produce electronics products, most of which are sold in company stores; and a network of service centers that repair consumer electronics products and personal computers.

Early History

Founder Charles Tandy's talent for marketing became evident when he took over the leather store his family had operated since 1919. He began to expand into the hobby market. Subsidiary locations had to be found as mail-order and direct sales increased. In 1960, as scouts and campers all over the country made moccasins and coin purses from Tandy leathercraft and hobby kits, the Tandy Corporation was established and began trading on the New York Stock Exchange.

As good as business was, it could not satisfy Tandy's passion for retailing. By the early 1960s, he began looking for a way to diversify. In 1963, Tandy purchased RadioShack, a virtually bankrupt chain of electronics stores in Boston that had been founded in 1921. Within two years, Tandy was making a profit on a company that had nearly $800,000 in uncollectibles when he took over. Ten years after starting with nine Boston outlets, the Tandy Corporation was opening two RadioShack stores every working day.

By all accounts, Charles Tandy was a modest man from Fort Worth, who stayed in his original office and answered his own phone until the day he died. While his CB radio moniker was 'Mr. Lucky,' Tandy's success was, according to analysts, due to more than just luck. They gave much more credit to three key marketing strategies that Charles Tandy developed and implemented.

First, Tandy stressed the importance of gross profit margins. Popular wisdom said a chain store's profits lay in cutting prices to yield a high sales volume. Tandy thought differently. As far as he was concerned, cutting the profit margin cut the profit. So he maintained market prices but reduced RadioShack's 20,000 item inventory to the 2,500 best-selling items.

Second, Tandy kept RadioShack prices competitive. He eliminated a whole spectrum of middleman costs by limiting stock to private label items. At first, the company established exclusive contracts with manufacturers, but as RadioShack grew, more and more items were designed and manufactured by associates or subdivisions of the Tandy Corporation. In the late 1980s, Tandy still manufactured about half of the products sold in its RadioShack stores. Twenty-five North American and six overseas manufacturing plants produced everything from simple wire to sophisticated microchips, and RadioShack's Realistic brand name--which dated back to the 1950s--had achieved nationwide recognition.

Charles Tandy's strategy of pairing high profit margin with high turnover and of in-house marketing and distribution more than proved itself. The gross profit margin on sales for the RadioShack division was consistently above 50 percent.

Even as he consolidated his inventory, Tandy was keenly aware that buyers must be conscious of a company's presence. 'If you want to catch a mouse,' Tandy was fond of saying, 'you have to make a noise like a cheese.' So another Tandy strategy was to go all out on advertising. Especially in the early years, as much as nine percent of the corporation's gross profits went straight back into advertising. For years, RadioShack's newspaper ads and flyers were not only frequent but also flamboyant. Bold type and huge letters proclaimed a never-ending series of 'super sales.'

The third arm of Charles Tandy's strategy was, in the words of one company official, to 'institutionalize entrepreneurship.' Tandy Corporation and RadioShack employees were living testimony that hard work and impressive sales earn their own rewards. Store managers, division vice-presidents, and Charles Tandy himself regularly earned eight or ten times their relatively modest salaries through bonuses based on a percentage of the profits they had a direct hand in creating; this policy spawned some 60 home-grown millionaires.

As RadioShack's electronics line grew increasingly central to Tandy, the family leather business became more and more of an anomaly. Finally, in 1975, the leather line and a related wall and floor-covering business were spun off into separate companies.

Entering Computer Market in the Late 1970s

When Charles Tandy died suddenly in 1978, at the age of 60, pundits and insiders alike wondered if the corporation could survive without its workaholic director and his individualistic marketing philosophy. Philip North, a director of the company and Tandy's administrative assistant and boyhood friend, stepped in as interim president and CEO of Tandy Corporation.

By his own admission, North knew virtually nothing about the technical side of RadioShack's product line. 'All I know about electronics is that the funny end of the battery goes into the flashlight first,' he told Fortune magazine. However, North knew plenty about his late friend's retailing style. Analysts credited him with keeping the corporation's strong management team together during the adjustment period after Tandy's death.

During these years, North called more and more on the expertise of John Roach, a man whose scientific and computer background had already attracted Charles Tandy's attention. Within a few years of hiring Roach as the manager of Tandy Data Processing, Tandy had made Roach vice-president of distribution for RadioShack. Two years later, in 1975, Roach became vice-president of manufacturing. Roach was then appointed RadioShack's executive vice-president immediately after Tandy died, becoming RadioShack division's president and chief operating officer in 1980, and CEO in 1981. When North retired in July 1982, Roach became chairman as well.

Roach's major contribution was in masterminding Tandy's entry into the computer market. Before Charles Tandy's death, Roach had talked him into venturing into the preassembled computer market. The sale of 100,000 computers between September 1, 1977 and June 1, 1979 kept RadioShack comfortably in the black even as the bottom dropped out of the CB radio market.

As Roach moved up the corporate structure, he intensified investment in computers. In 1982, less than a year after becoming CEO, Roach was singled out as 'the best of the best' by Financial World, which lauded Roach as 'the driving force at the front-running company in the red-hot personal computer race.'

Within a short time, however, there were rumblings that the driving force in this hot race might have been burned. By 1984, RadioShack's impressive 19 percent market share had plummeted to under nine percent. According to some critics, one of Tandy's problems resulted from Charles Tandy's policy of limiting RadioShack to private label items, preferably manufactured by one of Tandy's subsidiary divisions. As software and applications software poured out for Apple and IBM-compatible systems, fewer and fewer serious computer users were willing to limit themselves to software designed exclusively for RadioShack's TRS-80, or 'Trash-80,' as some sneeringly referred to it. In fact, Tandy found that even a superior machine could not overcome the software handicap. Officials at the company were shaken to find their 1983 Model 2000 would not sell, even though it was three times as fast as IBM's own PC, because it was unable to run half of the available IBM software.

In addition, RadioShack's marketing strategies had a vulnerable side. Company policy was to let other retailers test the waters with items such as stereos, CB radios, and 'fuzz buster' radar detectors. Then Tandy would take over a significant part of the market by introducing a house brand it advertised intensively. It was not always possible, however, to know what would boom and when, and when RadioShack simply did not have stock on hand when the VCR market exploded in the mid-1980s--the same time the computer market was drying up--both sales and revenues fell at an alarming rate.

That crisis led Tandy to modify its policy. In 1984, the company introduced two new computers that were fully IBM-compatible and exchanged the TRS label for Tandy. RadioShack management then set about underselling its Big Blue competitor. Such price competition was a departure from previous marketing strategy, but because Tandy's own in-house manufacturing divisions still produced virtually all the components, from wire to plastic boards to microchips, Tandy was able to keep profits up.

While it never regained its initial share of the PC market, Tandy consistently held first place among IBM-compatibles since it entered the field from 1985 to 1990. Tandy regained its place in the computer market by offering the buyer significant savings over IBM and other compatibles. At the same time, Roach also oversaw a wholesale revamping of the company's image. Ordinary RadioShack stores were given a facelift. To overcome the reluctance of serious business customers to take a computer shelved next to a CB or electronic toy seriously, Roach established a series of specialized RadioShack Computer Centers, providing a level of support and service that earned a 'Hall of Fame' award from Consumer's Digest in 1985.

Tandy continued to pour money into research and development to assure that they would not be left behind again by new developments in the computer field. In 1988 it acquired GRiD Systems Corporation, an innovator in the burgeoning laptop computer market. GRiD's ability to manufacture and market field automation systems using laptop computers opened a whole new area of expansion into government and Fortune 1000 marketing companies. Sales in GRiD's first year as a Tandy subsidiary exceeded expectations and helped underscore Tandy's image as a leader in personal computer technology by introducing innovations such as handwriting recognition and removable hard disc drive cartridges. In 1989, Tandy acquired the European marketing operations of Victor Microcomputer and Micronic, two respected microcomputer manufacturers. Merged under the name Victor Technologies Group, Tandy used the subsidiary to market GRiD products throughout Europe.

Tandy continued to maintain a high profile in the consumer electronics market outside of computers. In the late 1980s, the company put special emphasis on becoming a major force in both manufacturing and retailing cellular phones and home computers, which it saw as a major consumer product of the 1990s. Extensive efforts also went into the development of more business-oriented technology, including multimedia applications and digital recording. The latter resulted in the development of an erasable and recordable compact disc that commanded a great deal of interest in the electronics industry.

In many ways, during the 1980s, the Tandy Corporation had simply expanded on Charles Tandy's philosophies. The company centered its manufacturing and marketing firmly around computers and consumer electronics which it retailed primarily through its RadioShack outlets. Nonetheless, there were some significant deviations from Charles Tandy's views during the late 1980s. In 1985 the company entered the name brand retail market with the acquisitions of Scott-McDuff and Video Concepts, two electronic equipment chain stores. The 290 stores organized under the Tandy Brand Name Retail Group did not follow the RadioShack policy of selling exclusively private label brands. Other subsidiaries in the Tandy Marketing Companies also began to develop broader distribution channels. Memtek products, which included the Memorex brand of audio and video tapes, became available virtually everywhere such products were sold.

Tandy also made a push to sell its computers outside of RadioShack stores. In 1985, the company edged into broader markets by offering its computers on college campuses, military bases, and through special offers to American Express cardholders. In 1988, Tandy test-marketed its 100SX computer line through 50 Wal-Mart stores. The company also announced plans to develop new computers with Digital Equipment Corporation (reselling the finished product under the DEC name) and to supply personal computers to Panasonic (which would be sold under the Panasonic name).

Some RadioShack dealers saw Tandy's move to broaden its computer distribution as a potentially lethal threat. Many RadioShack dealers depended on their computer business for a significant portion of sales and doubted whether they could survive if customers began to shop around, looking for the same Tandy products for less elsewhere. In August 1988, a small group of dealers formed the RadioShack Dealers Association and began considering a class-action suit against Tandy.

Tandy's foundation at the time was its retail outlets. But beyond remodeling its 7,000 RadioShack stores and refining retail strategies, by the late 1980s, Tandy's own success had left its retail divisions with little room for growth. In 1989, Tandy posted record earnings. Business at RadioShack Stores, however, continued to decline, while sales in Tandy's subsidiaries GRiD, Memtek, Lika, and O'Sullivan Industries grew by over 50 percent.

Focusing on Retail in the Early 1990s

In the early 1990s, with its nonretail segment growing steadily, Tandy turned its attention to boosting its retail division. Leading the way were its McDuff and Video Concept Stores, which experienced an average of 14 percent same-store sales growth in 1989 and 1990. Tandy began a rapid expansion project, more than doubling the number of stores to 380 by the fall of 1991.

RadioShack, however, continued to feel the effects of a soft consumer electronics market. Tandy responded by closing its RadioShack Computer Center chain and by instituting an extensive marketing strategy that emphasized the high quality of both RadioShack products and service. In June 1991, Tandy announced plans to open Computer City, a new chain of computer superstores that was the first to offer IBM, Hewlett-Packard, Apple, Compaq, and Tandy computers, accessories, and software all under one roof. With its new 1000RL, a home computer system developed specifically for family use, Tandy went head-to-head against IBM for the home computer market, betting that this industry segment would grow by ten percent annually in the 1990s.

Also in 1991 Tandy opened the Edge in Electronics, a chain of upscale consumer electronics 'boutiques' designed to complement RadioShack's moderately priced goods. Its biggest new foray into consumer electronics retail, however, came with the 1992 launch of Incredible Universe, an elaborate 160,000-square-foot consumer electronics mini-mall, complete with child-care centers, karaoke contests, a recycling center, and a restaurant. According to Tandy literature, Incredible Universe was patterned after 'Disney's famous theme-park style of customer service. The store experience is called `the show,' employees are known as `cast members' and customers are the `guests.' Its $9 million inventory included everything from ten brands of computers to 300 different television sets and over 40,000 music and video titles.

The company took an enormous risk with opening Incredible Universe. Industry analysts predicted that each new store would have to turn over a volume of $100 million annually to remain profitable. Tandy committed itself entirely to the new venture. In 1993, it restructured its entire operations to focus on retailing and, in a bold move, sold most of its manufacturing operations. Victor, Tandy, and GRiD were sold to AST Research, Inc. for $201 million. O'Sullivan Industries, its successful furniture manufacturing arm, was spun off to raise $350 million. Memtek Products was sold to Hanny Magnetics for $128 million, and plans were made to sell Lika's manufacturing facilities for cash and notes.

Tandy then devoted its energies to polishing its image and expanding its base as an electronics retailer. Incredible Universe became a separate division and plans were announced to open 50 units by 2000. Computer City, which posted over $600 million in annual sales in its second year of operation, announced plans to open 20 new stores by the end of 1994. RadioShack improved service in its 6,500 locations and hired the agency Young & Rubicam to design a new advertising campaign that featured the slogan 'You've got questions. We've got answers.' The chain also changed its merchandise mix, most notably paring back its offerings in the increasingly low-margin personal computer sector and bolstering higher margin lines such as private label batteries and electronics parts. RadioShack also put increased emphasis on such hot areas as cellular telephones and direct satellite systems. For the first time since the early 1980s, RadioShack posted eight straight months of in-store sales growth. The Tandy Brand Name Retail Group's McDuff's and Video Concepts stores grew to become two of the biggest home appliance and electronics appliance retailers in the southeastern and south central United States. In less than two years, Tandy had transformed itself from a longstanding supplier and retailer of consumer electronics into a high-image conglomeration of electronics 'superstore' chains.

Late 1990s and Beyond: Refocusing on RadioShack

The 'new' Tandy proved to have a short shelf life, however--by decade's end the company would transform itself again. In the brutal environment for consumer electronics retailers in the late 1990s, with fierce competition from arch-rivals such as Best Buy and Circuit City and from general retailers such as Kmart and Wal-Mart, which were increasingly selling basic electronics goods, Tandy was forced to shed one after another of its chains.

Video Concepts was shuttered in 1995, along with 49 McDuff's stores. In late 1996 Tandy announced that it would close the remainder of the McDuff's chain; the entire Incredible Universe chain, which lost an estimated $130 million from 1993 to 1996; and 21 of its 113 Computer City outlets. The latter was operating in the red as well. While the divestments took place in 1997, Tandy took restructuring charges of $230.3 million in 1996, leading to a net loss for the year of $91.6 million on sales of $6.29 billion. The company completed a further retrenching move in mid-1997 when it sold a 20 percent stake in Computer City to a group of computer retailing executives, who took charge of running the chain.

Meanwhile, the RadioShack chain was continuing to be revitalized under the leadership of Leonard Roberts, who took over the presidency in mid-1993, having previously led turnarounds of Arby's and Shoney's Inc. In 1997 RadioShack began forming strategic alliances with key players in the electronics, telecommunications, and computer industries. The first was with Sprint Communications Company, which began operating 'Sprint Communications Stores' within RadioShack outlets offering a full range of telecommunications products and services, including long distance and wireless services. The 'store within a store' concept was extended to the computer arena the following year through an alliance with Compaq Computer Corporation, which launched 'Compaq Creative Learning Centers' featuring personal computers and accessories. The Compaq brand became the exclusive computer brand found in RadioShack stores. A byproduct of these alliances was that entire sections of RadioShack stores were overhauled with the help of outside partners, reducing Tandy's share of the remodeling costs.

The increasing influence of Roberts was shown by his promotion to president of Tandy Corporation in March 1997. One year later, Roach announced that he would retire at the end of 1998, with Roberts becoming chairman, president, and CEO of Tandy. Also in 1998 Tandy bought back the Computer City stake it had sold, then sold Computer City to CompUSA Inc. for $211 million. It could now be said, as Roberts put it at the 1998 annual meeting, 'Tandy is RadioShack, RadioShack is Tandy.'

The 'store within a store' strategy was clearly paying dividends as RadioShack had already become by 1998 the number one seller of telecommunications products in the country. The chain now had two major categories of business--the longstanding electronics parts and accessories and telecommunications. Further alliances followed. In May 1999 RadioShack entered into a partnership with Thomson Multimedia, owner of the RCA brand, to create a new 'store within a store' called the RCA Digital Entertainment Center, where RCA brand televisions, VCRs, camcorders, DVD players, digital cameras, and audio products would be displayed within RadioShack stores. In November of that same year, an alliance with Microsoft Corporation was formed to create the Microsoft Internet Center @ RadioShack, which featured dial-up and broadband Internet access as well as related products and services. Microsoft also agreed to invest $100 million in the e-commerce web site that RadioShack launched in October 1999, radioshack.com.

The newly streamlined and focused Tandy Corporation posted its best results in years in 1999--net income of $297.9 million on sales of $4.13 billion. Tandy Corporation changed its name to RadioShack Corporation in May 2000, the culminating move in its successful refocusing on its RadioShack core.

Principal Subsidiaries: A & A International Limited Partnership; AmeriLink Corporation; RadioShack.com, LLC.

Principal Competitors: Babbage's Etc. LLC; Best Buy Co., Inc.; CDW Computer Centers, Inc.; Circuit City Stores, Inc.; CompUSA Inc.; Creative Computers, Inc.; Dell Computer Corporation; Egghead.com, Inc.; Fry's Electronics, Inc.; Gateway, Inc.; The Good Guys, Inc.; Kmart Corporation; Let's Talk Cellular & Wireless, Inc.; Micro Warehouse, Inc.; Montgomery Ward, LLC; Office Depot, Inc.; OfficeMax, Inc.; PC Connection, Inc.; Sears, Roebuck and Co.; Sharper Image Corporation; Staples, Inc.; The Wiz; Ultimate Electronics, Inc.; Wal-Mart Stores, Inc.

Chronology

• Key Dates:

• 1960: Tandy Corporation is established and begins trading on the New York Stock Exchange.
• 1963: Tandy buys the RadioShack chain.
• 1977: Company begins selling personal computers.
• 1985: Scott-McDuff and Video Concepts are acquired.
• 1988: GRiD Systems Corporation is acquired.
• 1991: Computer City chain is launched.
• 1992: Incredible Universe retail concept debuts.
• 1993: Company sells most of its manufacturing operations.
• 1995: Video Concepts is closed down.
• 1997: McDuff's and Incredible Universe chains are shuttered; RadioShack forms alliance with Sprint.
• 1998: Computer City chain is sold to CompUSA; RadioShack forms alliance with Compaq.
• 1999: RadioShack forms alliances with Thomson Multimedia/RCA and Microsoft.
• 2000: Tandy Corporation changes its name to RadioShack Corporation.