RadioShack's Game Gambit

RadioShack is an enigma to me. A store that, in my opinion, miraculously outlived its time and contemporaries such as Service Merchandise. While not plagued by the excessive return rates and quality control issues of Service Merchandise, I always wondered how Howie Long and Teri Hatcher were going to take a store known (to me at least) as a place to buy the occasional cable and 4-ohm resistor and turn it into a profitable enterprise with staying power. I mean does anyone actually shop at RadioShack? To me, it's always been the place to go in an emergency, not the place for anyone who was prepared in their purchases. With their excellent real estate (locations) I suspect that they have had more opportunities to take advantage of, well, opportunity sales. It seems to work for them.

When they broke into the cellular phone market I was again skeptical - but then again I never understood how so many mall kiosks could also survive - and RadioShack has way more name recognition (thanks Teri and Howie.) Bottom line is that I shouldn't be making any stock recommendations for companies anytime soon.

Well now, RadioShack - the store that cannot die - is taking on Games. I mean console games. Games that are, amazingly, without profit margins for any but the powerhouse sellers. And I know, because Audioholics is setting up a storefront shortly and we have access to distribution pricing on game consoles and games. The margins are about $.01 per console and maybe $1 on a game - if you're lucky. I assume RadioShack will do a bit better, but you get the idea. RadioShack is beginning with its online division, which will sell consoles and games to consumers, but they will also be testing some in-store real estate to see if the concept can stick.

Their business model flies directly in the face of a direct competitor in this market: GameStop. RadioShack has 6000 prime-location stores in malls and standalone locations across the US. GameStop has 4000 - and that's all they do. Still, it's compelling to think that the electronics store will be taking on such a tough market. If they are to succeed, it will require them to make good choices on which games they will select and promote - since a large portion of their store must remain available for other SKUs.

It's going to be a fun, but bumpy, ride.