Rent-a-Center and GameStop's Bad Call: Copying RadioShack

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Rent-a-Center To Close Over 150 Stores
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Rent-a-Center (RCII) is developing a new product line to get it out of its slump.

"We are not satisfied with our second quarter results and hold ourselves accountable for improving our performance," the CEO of the country's largest rent-to-own retailer said after coming up short in Thursday's report. "To that end, we are excited to announce a new product line in our domestic retail stores with our entrance into the burgeoning smartphone business."

Did Robert D. Davis really say smartphones? He did. Offering smartphones that are easily lost, stolen or damaged to cash-strapped customers doesn't seem like a lucrative proposition. And the rub is that smartphones didn't work out well for RadioShack (RSH), another company in a funk.

Game On?

A few days before Rent-a-Center made its announcement, an analyst issued a bullish note on GameStop (GME). R.W. Baird's Colin Sebastian stuck to his bullish Outperform rating and his $50 price target after talking to the video game retailer's management.

Sebastian likes that GameStop has become AT&T's (T) third-largest retailer after acquiring Spring Mobile late last year and islooking to grow Cricket Wireless, AT&T's AIO brand of prepaid wireless stores that are being rebranded under the Cricket banner.

GameStop plans this year to add 200 to 250 Spring Mobile units to its existing 164 locations. It also plans to debut 100 to 150 Cricket Wireless locations after introducing 31 stores this past November. More importantly to its larger video game empire, GameStop is already offering Cricket pre-paid wireless at 100 of its stores.

GameStop and Rent-a-Center are taking entirely different approaches to smartphones. GameStop has aligned itself with AT&T, giving it all of the deals and incentives as the telco giant's corporate stores. Rent-a-Center wants to cover as many carriers and devices as possible to give renters a choice. However, the end result is the same, with the retailers following RadioShack into making mobile a bigger part of their operations.

Wrong Number

Rent-a-Center and GameStop are drawn to mobile because the physical products are small (which makes them easy to stock), and there are meaty bounties to collect in establishing initial carrier connections. However, eyeing a RadioShack chart may give any potential emulator some rightful concerns.

Since RadioShack decided to move away from traditional consumer electronics and key in on wireless products, losses are mounting, and RadioShack is closing more stores.

Did Rent-a-Center and GameStop take in RadioShack's latest problematic quarter before making the call to beef up on smartphones? RadioShack saw its red ink deepen, fueled largely by a 14 percent decrease in comparable-store sales. The move to depend more on smartphones has resulted in slower store traffic. That's not a surprise. Mobile phone products don't lend themselves to a steady flow of repeat customers, and once customers sign up, they may deal directly with the carrier in the future.

If RadioShack wasn't doing so well before, it's going to fare even worse in a more crowded market. Too many small-box retailers think that smartphones are the future, but they're probably ignoring why the RadioShack in the same strip mall is fading in popularity.

Motley Fool contributor Rick Munarriz has no position in any stocks mentioned. The Motley Fool owns shares of GameStop. Try any of our newsletter services free for 30 days.

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