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

Rent-a-Center To Close Over 150 Stores
Tim Boyle/Getty Images
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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I've got an old surround-sound system with a bad volume control. I checked on line and it's an easy fix-about $10 in parts. Went to Radio Shack to get them-what a disappointment. I could have bought just about any kind of cell phone and related accessory you could think of, but a 25 kilo-ohm potentiometer? Fuggedaboudit! Lame-asses

July 15 2014 at 6:08 PM Report abuse rate up rate down Reply

The RS's in my 'hood demise started when tey started to cater to blacks.

July 15 2014 at 7:00 AM Report abuse rate up rate down Reply

Greed will close these stores.

July 15 2014 at 4:56 AM Report abuse rate up rate down Reply

Beware if they rent by the week or month and own the phone number. It can be a trap.

July 14 2014 at 10:27 PM Report abuse rate up rate down Reply

Lower your rate and maybe you will be all right but your time is really up. AARON got you were it hurts

July 14 2014 at 7:41 PM Report abuse +2 rate up rate down Reply

Macy's /Bamberger's use to worry about another new mall and the auto factories on strike. Today the worry is too much retail with mainly retail customer with lower incomes shoping at each others stores. The better blue collar jobs went bye -bye leaving a poorer customer.

The retail bubble is coming.

July 14 2014 at 5:34 PM Report abuse -2 rate up rate down Reply

The object is low price because the consumer can't afford much else. Import as much crap as you want eventually retail will end up playing musical chairs because there are less individuals in this growing population with dollars to go around and keep you all in business.

All you can hope for is your competitor will buy you out an put you out of your misery.

July 14 2014 at 5:27 PM Report abuse -1 rate up rate down Reply

This is about players chasing other's who have already joined the saturated market because their own markets were destroyed by unfair trade and the over expansion of retail players. They are trying to save themselves but only the strong will survive here.

Give it up your just adding to the problem of no good jobs!

July 14 2014 at 5:06 PM Report abuse -1 rate up rate down Reply

I had four profitable RadioShack dealer stores until RadioShack became cell phone addicts. This killed my business since mine were built on consumer electronics. Add that to the internet taking a huge piece of the pie I finally closed my last store this year. Some people think they can reinvent the wheel. We'll see.

July 14 2014 at 2:33 PM Report abuse rate up rate down Reply
1 reply to rsdealer56's comment

Years ago instructors, hobbyists, and students came in for do it your self electrical and electronic components, speaker and other sound cabinet materials ect. People were avid cbers and ham radio enthusiasts and all the reading materials drew them in. The trade deals kill the regular business agenda an now the land is flooded with retail competitors fighting over a declining middle class whose crap jobs and part time pay checks afford them little.

It's a different consumer world of floor traffic too many choices and too few dollars to spend. The big dollars are leaving to avoid taxes so the planning boards will just keep approving more retail than is needed just to get the tax ratables they lost.

July 14 2014 at 5:20 PM Report abuse rate up rate down Reply