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Saturday, April 22, 2006

Retail impact when Stock balancing risk is not offset to Vendor

What happens when a Retail customer doesn't succeed in realizing a stock balancing program? RadioShack Q1 profit drops 85% on weak cellphone sales. Buyer Beware can take on an entirely different meaning, when buyer is buying inventory. Buy too little, and shelves run empty. Buy too much, and costs ramp up and turns slow down. Buy the wrong product, and no one will buy it. Radio Shack seeing its Q1 inventory overloaded with cell phones is taking a number of steps to improve its situation. It has slashed this years advertising campaign by approximately $30 million. Its continuing to close stores. In a major change, they have switched from selling phones for Verizon Wireless to the AT&T arm of Cingular. Radio Shack has been selling phones for Verizon since Verizon came into existence in late 2000. When a retailer makes a purchasing decision, that results in lack lust sales, they have to turn to their bag of tricks to save the day. Sometimes their vendor agreements will allow a stock balance to occur. This would provide them a chance to reset, remove and replace slow moving inventory with new models. It appears that Radio Shack chose to forego this option, and resorted to a second trick. It changed vendors. Maybe Verizon did not allow a stock balance to occur, maybe Radio Shack did not like the new model phone alternatives offered by Verizon this year. Maybe on top of all the problems it was time for a change. For Verizon, this is a serious problem. The cell phone carrier is losing access to several thousand points of sale across the country and its competitor is gaining access to the same locations. They are also losing access to the benefits of Radio Shack's remaining, after cuts, $220-$230 million ad spend for this year. The ad money would not have been focused on Verizon products alone, but anyone pulled into a small Radio Shack store can't help but seeing the cell phone section. Maybe Verizon should have fought harder and considered the total cost of placating Radio Shack. On the flip side, sometimes a vendor has to choose a path of tough love with a retailer that has a declining or sick business.