Yesterday, in a major strategic move, electronics
) agreed to dissolve their existing business relationship.
Earlier, in 2010, RadioShack entered into an agreement with
Target to roll out Kiosks for wireless products in 1,500 discount
stores of the latter. The project was completed in mid-2012.
However, ever since its inception, the deal has been
unprofitable for RadioShack. The primary reason behind this is
that RadioShack was managing only postpaid mobile business of
Target, which is a low-margin one. The company has no access to
high-margin prepaid mobile business or highly lucrative phone
accessories business of Target. Accessories have higher profit
margin than any devices.
Since October 2012, RadioShack was trying hard to renegotiate
the terms of the partnership so that both the companies can earn
profit. However, the two entities failed to reach any agreement.
According to management the agreement will come to an end on
April 8, 2013.
We believe that termination of the Target deal is a blessing
for RadioShack. The company is facing bottom-line pressure for
its lucrative wireless platform. In the third quarter of 2012,
the company suffered a $47.1 million net loss.Moreover,
RadioShack delivered weak bottom-line results due to costs
associated with transition from an adverse product mix toward
low-margin smartphones. The company currently has a long-term
Neutral recommendation and short-term Zacks Rank #2 (Buy) on its
RadioShack has undertaken a global expansion strategy. In
April 2012, RadioShack announced a franchise deal with the
Malaysian conglomerate, Berjaya. Berjaya expects to open 1,000
stores over the next 10 years in several South-East Asian
countries including Vietnam, Malaysia and Thailand.
In a bid to tap the growing Asian market, RadioShack has
entered into an agreement with Asian retailer Cybermart to open
small retail outlets in China, Taiwan, Hong Kong and Macau. The
first outlet was opened in Shanghai. Both RadioShack and
Cybermart have a respective 49% and 51% stake in the project and
also invested $2.94 million and $3.06 million respectively. They
also plan to open at least 1,000 stores in the growing Southeast
Asian markets with a further capital infusion of $34 million in
the next three years.
RADIOSHACK CORP (RSH): Free Stock Analysis
TARGET CORP (TGT): Free Stock Analysis Report
To read this article on Zacks.com click here.