RadioShack closings likely to prove costly for Sprint

Sprint
RadioShack filed for Chapter 11 protection on Thursday, saying it will close roughly 200 stores and “evaluate options” on the remaining 1,300 outlets.

RadioShack’s second bankruptcy filing in as many years could prove troublesome for Sprint just as the carrier is looking to ramp up its retail distribution, according to analysts at Wave7 Research and BTIG Research.

The venerable electronics retailer filed for Chapter 11 protection on Thursday, saying it will close roughly 200 stores and “evaluate options” on the remaining 1,300 outlets, Reuters reported. Sprint purchased 1,750 RadioShack stores in early 2015 after the company went bankrupt the first time, and several months later the operator had a presence in 1,435 of the stores.

Sprint released a statement on Wednesday saying the bankruptcy and store closings “are not material to Sprint’s overall sales results” and actually provide an opportunity to expand its footprint of branded Sprint retail locations.

“We evaluated the performance and location of Sprint-RadioShack stores and reached an agreement with [RadioShack parent company] General Wireless Operations to convert several hundred doors into Sprint corporate-owned stores,” wrote Kevin Crull, Sprint’s president of omnichannel sales. “We will redeploy to other Sprint stores assets such as signage, displays and inventory currently at RadioShack locations which are closing.”

That strategy is in line with comments from Sprint CFO Tarek Robbiati this week that Sprint is working to increase its distribution footprint but lessen its dependence on third-party dealers.

“We are not satisfied with the level of productivity we are driving across all our channels,” Robbiati said on Tuesday at an investors conference, according to a Seeking Alpha transcript. “Right now we feel we are a little bit overindexed on expensive distribution channels. So, for example, we acquire more customers than we would like to in channels that are expensive, like dealers. Dealers, yes, you pay them a variable commission, but the variable commission has been sized to include recovery of the overheads. If we were to acquire the same amount of customers into our own company-owned retail stores we would be incurring a much lower variable cost of acquisition, or gross adds, or lower cost to bear.”

As Jeff Moore of Wave7 Research observed in a research note to subscribers, though, the closing of so many RadioShack outlets will leave Sprint with the lowest number of retail locations among the major U.S. wireless carriers. While Sprint’s sales volumes may not have been very high per RadioShack outlet, the chain accounted for about 30% of the carrier’s overall retail footprint.

As Walter Piecyk of BTIG noted, Sprint’s retail buildout comes in the midst of an aggressive retail expansion by rival T-Mobile. T-Mobile and its prepaid brand MetroPCS continue to open stores primarily in suburban regions in an effort to capitalize on the growth of its LTE network over the last two years.

And the impact of a strong retail presence isn’t limited to over-the-counter phone sales, Piecyk pointed out. Outlets often serve as a key point of contact between carrier and customer, which can help lower churn rates and maintain positive customer relations.

“Finally, with industry churn at record lows, it’s important to recognize that a branded store also contributes to customer satisfaction,” Piecyk wrote (sub. req.). “Existing customers use stores to upgrade phones, pay bills and handle equipment or service issues. We believe these customer service-related items can account for more than 50% of a store’s activity. While the loss of 1,000 RadioShack stores may 'not impact sales' in the near term, these other benefits and a reduction of a community presence is not costless for Sprint.”