According to a Bloomberg report, Sprint Corporation (S) might consider to take lease on some of RadioShack Corp.’s (RSH) stores in order to spur a turnaround and to revamp its deteriorating business by adding more retail locations.
Notably, destination stores happen to be the latest trend in the wireless industry. The arrangement in such stores allows customers to touch and feel the latest devices and check out new applications and services by themselves. Simultaneously, they also provide wireless carriers the opportunity to attract more subscribers and thus boost sales.
However, Sprint has only 1,100 self-recognized stores, as against three of its major competitors, namely, Verizon Communications Inc. (VZ), AT&T, Inc. (T) and T-Mobile US, Inc. (TMUS). While Verizon has about 1,700 outposts of its own, both AT&T and T-Mobile run over 2,000 stores.
Also, Sprint has been largely dependent on third-party retailers to drive subscriber additions and boost sales. Thus, the talks with RadioShack might help the carrier to increase its presence in the market, develop distribution system, reverse the loss of customers and evade a further plunge in position among the major wireless carriers in the U.S.
Last week, The Wall Street Journal reported that beleaguered electronic and mobile products retailer, RadioShack, may possibly file for bankruptcy protection in early February. The company has been struggling to raise enough cash and credit to stay afloat, despite desperate attempts to turn around business over the last 18 months. Last year, RadioShack tried to close 1,100 stores, but lenders did not agree with the plans and the retailer ended up closing only 200.
To add to the woes, the Federal Communications Commission recently levied a $105 million charge on Sprint for unauthorized billing. Moreover, in the second quarter of fiscal 2014, Sprint reported a loss of 272,000 postpaid subscribers. This is a major concern for the company as all three of its major competitors have gained a substantial number of postpaid subscribers over the same period. Also, Sprint’s quarterly total retail pre-paid and postpaid subscribers churn rate has deteriorated with the company losing several of its high-end users to rivals.
We believe persistent subscriber loss in the face of intensifying competition along with the unauthorized billing charges are likely to impact subscriber growth at Sprint further. However, if the deal with RadioShack materializes, it might bring some respite for the wireless carrier.
Both Sprint and RadioShack retain a Zacks Rank #3 (Hold).
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