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

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.

Target's mobile phone kiosks will be run by Radio Shack until April

Target's mobile phone kiosks will be run by Radio Shack until April

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

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7 Comments

1. Ruckus

Posts: 286; Member since: Oct 20, 2011

Ouch! I had heard this might happen. Hopefully both will have benefited in ways.

2. mullman85

Posts: 12; Member since: Dec 28, 2011

Target Mobile isn't going anywhere. They will just no longer be operated by Radioshack. Target will continue the operation and will become stronger.

3. BREvenson

Posts: 240; Member since: May 17, 2012

Yep. Not a good time to be a Radio Shack stockholder. Stock has been plummeting, people just aren't buying many phones from them. As a former employee, I can easily say that even now, people don't see RS as a viable retailer for smartphones. While it does account for half of their sales, the fact that their sales have been low for quite some time does indeed hamper the overall effect of any good news they've had. Those are the breaks...hopefully both Target and Radio Shack can save face and stay alive long enough to try and recoup their losses. Target should be okay; they get plenty of revenue from the other aspects of their retail operations. Radio Shack, on the other hand...I don't know.

4. mullman85

Posts: 12; Member since: Dec 28, 2011

No sales associates will lose their jobs in this. Brightstar and MarketSource will assume responsibilities previously managed by RadioShack. Target Mobile will undergo a transition period between now and April 8, 2013 to ensure there is little to no disruption in the guest experience.

6. ceepyou

Posts: 65; Member since: Apr 10, 2012

You are 100% right in this. Brightstar is the supplier for RS, Wal-Mart, Best Buy, Amazon, and many other brick and mortar and online retailers. With them heading the operation, the middleman has been cut out and Target will see more profits. RadioShack ended their contract early because it was neither ethical or fair to continue under the same business model. MarketSource employs many T-Mobile reps. The experience is there. Expect Target to invest more capital in nationwide advertising outside of their circular.

5. CapedCrusaderRobin

Posts: 32; Member since: Dec 19, 2010

what they dont tell you is that behind the scenes at RS one of the efforts to conserve the cash flow is by cutting the cash flow in the form of commissions to their sales associates when making phone sales. Used to be $30 commission on every new activation ($15 on add a line) now its down to $14 on a new activation and $7 on add a lines. Prepaid activations stay at $5 for every sale. Also they been cutting their older salaried staff and hiring more part timers to pick up the slack, and have taken away personal assistants from district managers and demoted them (the personal asst.) down to sales associates if they wanted to still stay employed.

7. donfem

Posts: 708; Member since: Mar 30, 2011

Re-diversification with accurate planning will do both of them a great deal.

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