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Cost cuts reap profit for Radio Shack

People shop at a Radio Shack in Santa Monica, California.

TEXT OF STORY

Kai Ryssdal: Consumer electronics can be a brutal business. Narrow profit margins, tough online competition and discounts, discounts, discounts. Some national chains have folded, Circuit City probably the best known. But today Radio Shack reported its profits rose 18 percent from a year ago. Marketplace's Dan Grech explains how they pulled it off.


DAN GRECH: Radio Shack's been around so long, some say it feels like a relic from the 90s. John Laposky is managing editor of Twice, a consumer electronics industry newsletter.

JOHN LAPOSKY: By the general public, they are seen as kind of out of date, behind the times, they're not big and flashy.

So why has Radio Shack survived as others have fallen? Part of the answer is the company's ubiquity: 4,500 stores, 1,400 dealer outlets and 600 cell phone kiosks.

CARL HOWE: They're a little bit like the McDonald's of technology retail.

That's consumer analyst Carl Howe with the Yankee Group.

HOWE: They don't have the fanciest things. They don't have the highest-end models. But they do have something that a lot of people will buy.

Radio Shack also has been ruthless about cutting costs and closing underperforming stores. The chain was profitable this past quarter not because its sales are up, but because its expenses are way down. Analyst Paul Nolte with Hinsdale Associates says Radio Shack has cornered a consumer niche: the do-it yourselfer.

PAUL NOLTE: A Best Buy or a Circuit City is a let me buy everything and be done with it. As opposed to, you know, I need a couple replacement parts, can't find it anywhere. And Radio Shack is the place to go to find some of that stuff."

Radio Shack sees its future in wireless accessories and services. Last week, it inked a deal with T-Mobile to start selling their phones.

I'm Dan Grech for Marketplace.

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Have these guys been in a Radio Shack lately? I was shocked at the products they are carrying today. Gone are the old replacement tubes for a 1948 Univac computer. The stores are clean, fresh and now carry iPods, memory cards, etc. I would actually buy something from them. In fact I did - a memory card for my camera phone. Much easier than going to a Best Buy.

I just find it interesting this story did not mention the significant step Radio Shack has just announced in sponsoring Lance Armstrong's 09/10 Professional Cycling team. That seems to indicate a big marketing push by Radio Shack. All that cost cutting freed up some dollars.

My question is why is the stock price down $1.06 today? I bought in and boom! I thought they made their eps and were doing well!

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