Best Buy Reportedly Exploring RadioShack Merger

Discussion
Mar 29, 2010
Tom Ryan

By Tom Ryan

According to a report in the New York Post, Best Buy is
reviewing a potential merger with RadioShack, which is said to be looking for
a buyer. Both Best Buy and RadioShack said they don’t respond to market
speculation.

A purchase of RadioShack would boost Best Buy’s efforts to capitalize
on fast-growing demand for smartphones and other wireless gadgets. Best Buy
Mobile departments have been added inside its stores but the retailer has also
been slowly testing and rolling out stand-alone Best Buy Mobile stores over the
last three years.

“This is all about handheld devices,” one banking source told the Post of
the acquisition talks. “A whole new wave of these products are coming out
and they’re going to break the monopoly of the carriers,” whose market power
has hurt RadioShack’s profits in the past.

Best Buy ended 2009 with 74 Best Buy Mobile stores, which range from 1,000
to 1,200 square feet, and it currently has 77. Last week, it announced plans
to open 75 to 100 small stores, primarily Best Buy Mobile stores, in the U.S.
this year.

RadioShack has more than 6,000 stores. Last month, it said higher sales
of cell phones and coverage plans drove fourth-quarter profit ahead 26 percent.
In the quarter, it added T-Mobile to its list of carriers, and also said sales
were higher for Sprint Nextel cell plans and for prepaid phones and airtime.
Last October, it launched a pilot mobility kiosk program in about 100 Target
stores. And just last week, RadioShack said it will begin selling Apple iPhones
nationwide under a special pricing campaign, which will make it the second-largest
iPhone retailer after Wal-Mart.

Other options RadioShack may explore, investment bankers told the Post,
are a sale to a private-equity buyer, a massive share buyback or a strategic
acquisition of its own.

Discussion Questions: What do you think of a potential Best Buy acquisition
of RadioShack? How would you rate the mobile phone and wireless coverage opportunity
for retailers overall?

Please practice The RetailWire Golden Rule when submitting your comments.

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20 Comments on "Best Buy Reportedly Exploring RadioShack Merger"


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Bill Bittner
Guest
Bill Bittner
11 years 1 month ago

I find this possibility interesting because it has always baffled me why RadioShack never introduced their own “Geek Squad” to help people with their electronics. With their many locations and their walk-in service for customers setting up their electronics, it seems like RadioShack has missed the opportunity to offer customer service that could also be a big revenue producer.

Now, it seems that Best Buy may be taking the reverse approach and buying RadioShack for their outlets. This may make sense as more purchases occur online and pick-up at store becomes more popular. With more smaller outlets, Best Buy could push their website while using the smaller RadioShack retail locations and distribution points.

Carol Spieckerman
Guest
11 years 1 month ago

I can’t comment on this for a few reasons, however, my friends over at Retail Leverage have a great take on how a “Best Buy Mobile” scenario might unfold: What If Radio Shack Becomes Best Buy Mobile?

Anne Howe
Guest
11 years 1 month ago

Best Buy would be making a very smart investment in adding a smaller store footprint to its stable of locations, as well as adding competencies in sales and merchandising expertise in hand held devices. I would like to see Best Buy succeed in additional bold strategies to stay out ahead of the marketplace. This retailer consistently behaves like the leader it is. I hope they let James Damian take a crack at re-designing the RadioShack stores. They could use his talent!

Warren Thayer
Guest
11 years 1 month ago

Good idea for both. RadioShack, to me, kind of got lost and became an “all things to all people” shop without a clear mission. It never came close to matching the excitement of Best Buy in terms of merchandising and promotion. If it specialized and became more niche, it could also serve shoppers better by having more informed store help. Right now, it’s a tall order for store help to be up on all the things available in the stores, although to my experience they’ve always done a fairly good — but not excellent –job of it.

Max Goldberg
Guest
11 years 1 month ago

Mobile handset manufacturers are increasingly looking to offer products that aren’t wedded to specific carriers. Consumers will be able to buy more phones that work on VOIP or are not tied to a specific carrier. RadioShack stores tend to be less chaotic than Best Buy and are usually staffed by people who are more knowledgeable. Plus, they have more locations.

Just as grocers are opening smaller stores to cater to customer needs, it would make sense for Best Buy to acquire RadioShack. If this were to happen, it would require that these stores have a different mindset than the typical big box Best Buy. I’d hate to see RadioShack lose its neighborhood feel. I’d also hate to see Best Buy reduce the number of products, particularly parts, that RadioShack carries.

Steve Montgomery
Guest
11 years 1 month ago

As mentioned in some of the earlier comments, there are a lot of reasons this makes sense for Best Buy. I wonder if they would be smart enough not to alienate the current RadioShack customer base. Many of these people come in (as I did recently) for electronic items that cannot be found in other stores. It would be a shame to have Best Buy make the purchase and then eliminate the very reasons some people shop at RadioShack.

Cathy Hotka
Guest
11 years 1 month ago

Holy Moneybags, Batman!

RadioShack has stores in nearly every zip code in America. A merger like this could give Best Buy extraordinary reach into a huge number of communities. This would also provide extension into RadioShack’s components and parts market, which is significant. Wow.

Phil Rubin
Guest
11 years 1 month ago

This deal makes sense for a lot of reasons — and for one alone: mobile.

At the same time, there are many other synergies for Best Buy as it seeks to grow beyond big box footprints and broaden its distribution of both mobile devices/accessories and smaller ticket items in general. These are profit drivers of BB, along with services, which will also be boosted with greater distribution.

RadioShack’s value proposition traditionally has been knowledge, and selling all the random items needed to connect things. This goes hand-in-hand with the Geek Squad’s offering.

RadioShack has never really recovered from the disaster of Len Roberts’ succession, though they’ve made some progress recently (though clearly not enough).

Transforming RadioShack to a platform under the Best Buy brand makes great sense strategically assuming they can make the numbers work.

Paula Rosenblum
Guest
11 years 1 month ago

Looks good on paper, but I believe in reality it would be very bad. Look at Walmart’s (and even Tesco’s) attempt to create neighborhood markets. Companies that deal in tonnage find it hard to understand the nuances of small box specialty stores, most especially logistics.

Best Buy would seek to remake “The Shack” in its own image and would fail miserably. A bad idea for both parties.

Kevin Graff
Guest
11 years 1 month ago

Circuit City (remember them?) bought the Canadian division of RadioShack a number of years back and rebranded the stores The Source by Circuit City. It became a bit of a disaster because the approach was to jam as much product into the stores as possible in an attempt to create a sort of mini-Circuit City. It lost all focus. The stores were recently bought out by Bell (major telcom company) who hopefully will streamline the business.

I mention this only to throw a bit of luke warm water on the notion of Best Buy purchasing RadioShack. I hope they don’t follow the same path as Circuit City did.

Doug Fleener
Guest
11 years 1 month ago

I’m sure Best Buy Mobile will make it to the mall; I just question this would be the path. This might have made sense when RadioShack was on the verge of going belly up, but I don’t see why Best Buy would pay a premium to take over their locations.

Gene Detroyer
Guest
11 years 1 month ago

More than half, and by some estimates 80%, of acquisitions are failures. The key reason for failure is the lack strategic thought prior to the acquisition. Too many times, a CEO says, “Let’s buy it,” then determines what the reasons are. Best Buy could easily mess up this move.

The key to Best Buy making this a successful acquisition is not to make this a little Best Buy, but to make this a RadioShack type arm. Yes, it provides Best Buy great access into the mobile market, but it also provides BB (well known for service and expertise) with an even higher level of expertise. It is surprising that The Shack’s associates have greater knowledge with mobile products than the independent stores that specialize in mobile.

Certainly, BB should follow Bill’s suggestion to extend the Geek Squad into The Shack’s locations. That gives BB a competitive advantage that would be hard to match.

Ted Hurlbut
Guest
Ted Hurlbut
11 years 1 month ago

On the one hand, this could make a lot of sense for BB from a shear real estate point of view, although I question if they really need or want all 6000 locations. Even if they closed half the RS stores (for arguments sake) they’d still be sitting on some prime retail locations.

But I think this would not be a good move for BB. I’m always cautious about retail acquisitions on this scale. Dealing with that many stores all at once creates an enormous strain on even the best organizations. They would, by definition, have to absorb the RS store level employees, and I question whether that would be a good fit at all.

I don’t consider RS a serious competitor to BB. I suspect BB would be far better off expanding their smaller stores organically, and rolling up RS one market at a time.

Jonathan Sapp
Guest
Jonathan Sapp
11 years 1 month ago

An interesting group of comments. I tend to side with those who think it’s a good idea, but I also have concerns about them “doing it right.” Both brands are very strong. It would be a bad move to eliminate the RS brand. Possibly “RadioShack by Best Buy” or something similar. Acquiring RS would give BB the sites they need to make their mobile store division a success. However, they need to remember that RS also has an almost exclusive market niche for parts and accessories that should not be eliminated. The people who tinker with electronics tend to be early adopters and having those product lines drives sales of the latest mobiles.

Doron Levy
Guest
Doron Levy
11 years 1 month ago

RadioShack still has a bit of market to itself in the U.S. but is in dire need of re-invention. I just wanted to point out that Canadian RadioShacks were bought out by Circuit City and then renamed The Source by Circuit City. Now that CC is gone, it’s just called The Source but I thought it ironic since we are now talking about BB doing the same thing in the U.S. The change in Canada actually helped the chain and they have moved on from Realistic and Tandy quality products to more upscale electronics and gadgets. Wireless sections were expanded and highlighted which has also helped drive sales.

Craig Sundstrom
Guest
11 years 1 month ago

I’m surprised by the enthusiasm in the comments here – not exactly reflected in the poll numbers – given that it was just a few months ago that we were being informed of a rebranding effort (“The Shack”), a move that almost invariably signals trouble. So I’ll go with Ted on this one: this would seem to be a real estate move more than anything else (and not just any real estate, but “people are used to coming here for electronics even if it’s not as often as it used to be” real estate). As to the eventual demise of the RS name that would likely accompany such an acquisition, I would feel sad in the same nostalgic way I felt about Woolworths. Although I had little use for them when they were around, I missed them once they weren’t.

Drew McElligott
Guest
Drew McElligott
11 years 1 month ago

From Shack’s perspective, this makes all the sense in the world – more sense than those Circuit City rumors a couple years ago. From BB’s perspective, I’m not as sold on the benefits. Best Buy Mobile is already popping up in malls that I’ve seen. BB is in an advantageous position already as a tenant with a pulse and with vacancies still on the rise especially at mall locations.

I do see upside from the fact that Shack is in LOTS of smaller and more tertiary markets where BB wouldn’t dare go, let alone open a junior box-sized store. The larger store doesn’t make sense in many smaller markets anyways. So in terms of market growth, I presume they’d have instant access to a ton of smaller markets throughout the country where the bigger national chains other than WMT never bother to step into.

Camille P. Schuster, PhD.
Guest
11 years 1 month ago

Best Buy would have to be prepared for a MAJOR re-training job or the venture will fail. Long ago I turned my back on RadioShack because every time I went there I received the wrong advice to fix my problem!! Without better training and customer service, this would be a great disservice to the Best Buy brand.

Ed Dennis
Guest
Ed Dennis
11 years 1 month ago

This could work for Best Buy and Radio Shack. Sears has tried to set up a similar system. It greatly expands the footprint. My community has 2 Radio Shacks but no Best Buy. We have to travel about 70 miles to get to a Best Buy. If Best Buy can turn Radio Shack locations into satellites then they can greatly expand their reach at little cost. Will take some management and some new systems, but there is no reason that Best Buy Express (New Name) couldn’t tie into the Best Buy web site and offer free or reduced delivery cost to those of us in “fly over country” who want to purchase from Best Buy.

Ed Rosenbaum
Guest
11 years 1 month ago

The idea is a good one at first glance. RadioShack is located in so many areas where BB can’t because of sheer size of their footprint and the expense involved. RS is already there so why duplicate what is working? If managed properly, there should be no comparison to the Circuit City Canadian experiment. This sounds like a potential win/win for both, even though it might cost some jobs from the RS side of the potential merger.

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