Radio Shack and Target are splitting up; who gets the kids?

Since 2010, Radio Shack has been operating the mobile phone kiosks at 1,500 Target locations. Both sides have decided to call it quits as the arrangement has just not worked out. Once the calendar reads April, Radio Shack will no longer be in charge of the mobile phone kiosks at Target. The partnership had produced red ink for Radio Shack in the amount of $38 million for the first three quarters of 2012. The deal had been a lose-lose for both sides and while Radio Shack had hoped to use Target as another place to sell red-hot smartphone and tablets,  as anyone who has stepped into a Target can attest to, both mobile products were not high priority items in the stores.

Meanwhile, Radio Shack has made a big effort to become a major player in the business. With an infrastructure in place that already includes stores coast to coast and a rather highly recognizable brand name and identity, pushing smartphones has been a great idea. Mobile handsets now account for half of Radio Shack's sales. But with prices for the phones constantly being discounted, company margins have taken a hit from 44% to 36% in the 12 months ended September 30th.

Things are so bad at the Shack that credit ratings agency Fitch recently lowered the company's debt rating to CCC which is a few rungs under "junk". Meanwhile, by eliminating the dividend and restructuring some debt due this year, the company is trying to conserve cash to keep going. Fitch had cut its ratings due to a steep drop in the retailer's profitability.

That leaves Target. Will the discount retailer give up on mobile phones, do it themselves, or find a new partner? Target has until April to decide.

source: WSJ