RadioShack’s Expanding ‘Fix It Here’ Footprint Can Help Increase Its Customer Base

RadioShack (NYSE:RSH) extended its ‘Fix It Here’ program to 30 stores in Houston, earlier this week. Launched in November last year, ‘Fix It Here’, RadioShack’s national repair program for phones and tablets, is now available in 650 RadioShack stores across the nation and the company aims to roll-out the program in 700 stores by the end of this year.

In the last few years, RadioShack has been plagued by an eroding top line growth, declining gross margins, high inventory levels, a string of debt maturities and declining cash reserves. The company reported its tenth consecutive quarterly loss in Q2 2014 (reported on September 11th). Though RadioShack claims to be making steady progress with its turnaround initiatives (which were implemented last year), it has failed to show any significant financial gains so far. Its stock is currently trading at less than $1, down almost 70% year-to-date.

Retail and mobility are the two key platforms that RadioShack uses to measure its business. The company claims to be making progress in its retail segment, which accounts for 50% of the sales. It is seeing customers responding positively to the key elements of its turnaround strategy such as the actions it has taken (so far) on reinvigorating the store experience, revamping product assortment and creating a stronger inventory position. However, RadioShack continues to suffer in the mobility segment which accounted for more than 75% of the decline in sales in Q2 2014.

The ‘Fix It Here’ Program can provide RadioShack with the much-needed financial hedge as it tries to rebuild its mobility business.

See our full analysis for RadioShack

‘Fix It Here’ Can Help Increase Footfall In RadioShack Stores

With the ‘Fix It Here’ initiative, RadhioShack offers same day (typically less than two hours) repair services, such as fixing cracked screens, broken buttons, faulty cameras, water damage, audio issues and other maladies, for the most popular smartphones and tablets in the market. Repair starts at $39.99 and include a 90-day warranty. RadioShack claims that its repair technicians are receiving 40 hours of highly specialized, hands-on training to repair these common issues.

According to a report by IBISWorld, repairs is a $1.4 billion-a-year market, and its been growing at about 5% a year. The report also states that though there are over 2,300 businesses who offer repair services for phones, there is no company with a dominant market share. RadioShack is the first trusted national brand to offer these services in-house. ((RadioShack bets on in-store, same-day repairs to smartphones and tablets, Dallas News, June 6, 2014)) The company has the largest national presence, with a RadioShack store within 5 miles of 95% of Americans. ^[1]

The ‘Fix It Here’ initiative can help RadioShack lure back old customers as well as attract new customers to its stores, which can help in cross selling other products. Additionally, people who might not want to opt for the repair service (due to high costs) have the option of buying a new device then and there. Providing both the options to customers under one roof can significantly increase footfall in RadioShack stores.

RadioShack is witnessing fundamental challenges in its mobility business and is working hard to optimize profitable transactions in this segment. The mobility unit is suffering because of the low consumer interest in the current assortment of handsets, the aggressive promotional environment on these products and intense wireless carrier marketing activities. Customers have delayed purchasing or upgrading their phones, which in turn has led to further aggressive price competition on existing handsets among the wireless carriers and other retailers.

RadioShack claims to be addressing the above problems head-on by focusing on profitable sales. It is improving the technology it uses to sell mobile phones and bringing in new wireless offerings. The mobility market has been soft for a number of quarters, but Radioshack expects that new products from key vendors will spur demand in the future.

Our price estimate of $0.86 for RadioShack is slightly above the current market price. We maintain a cautious outlook on the company and estimate revenue of around $3.3 billion for fiscal year 2014. Our fiscal 2014 GAAP earnings per share estimate is -$1.74 as compared to the market consensus of -$3.71 (as per Reuters).

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1. The RadioShack ‘Fix It Here’ Program Is A Welcome Commentary On Disposable Consumerism, Forbes, June 11, 2014 [↩]