RadioShack Corp. (RSH), the wireless devices and electronics retailer, has decided to continue its ongoing sales promotion for wireless service contract through the end of 2011. Every customer, who enters into wireless service pact, will be able to choose one handset free from at least 20 different smartphones. Normally, RadioShack offers a list of 5-10 handsets from which subscribers can choose one. In addition, the company offers a qualitative service and provides free and neutral advice to each and every customer for selecting a service plan or handset.
Notable handsets among RadioShack’s current offer include HTC Corp.'s Inspire 4G and Samsung Electronics Co.'s Conquer 4G. However, the list of free handset offered lacked the legendary iPhone 4 of Apple Inc. (AAPL). By offering high-end smartphones for free, RadioShack is trying hard to gain a foothold in the lucrative wireless services market. RadioShack has re-launched its “The Shack” brand of retail store chain and put emphasis in wireless technology in order to stay aligned with the future trends. The wireless category currently represents half of the company’s total sales.
Despite giving maximum emphasis on wireless segment, RadioShack is yet to strengthen its foothold. The company is facing intense competition from Best Buy Co. Inc. (BBY), which is gradually rolling out small format mobile stores. Best Buy plans to open 600 to 800 stores within a period of 5 years, which in turn, will negatively impact RadioShack’s market shares. These stores are mainly located in such shopping malls, which are traditional RadioShack territory.
RadioShack is facing bottom-line pressure for its lucrative wireless platform. In the previous quarter, sales inched up 1.3% year over year. However, the company will continue to face weak bottom line due to costs associated with transition from T-Mobile to Verizon Wireless partnership. Verizon Wireless is a joint venture between Verizon Communications Inc. (VZ) and Vodafone Group plc. (VOD). Although management remains confident of achieving future business from Verizon, it believes that Verizon business needs more consumer awareness and the company will spend increasing amount for marketing. We expect wireless division revenue of RadioShack to remain almost flat year over year in 2012.
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