Even RadioShack Can't Make Money On Mobile Phones Now

RadioShack (NYSE:RSH) is easing away from its dependence on selling mobile phones, after more than a year of losing money. That shift may be back toward the retailer's roots: non-phone consumer electronics and even do-it-yourself hobby kits.

In an earnings call on Tuesday morning (April 23), new CEO Joseph Magnacca said he is still evaluating the business. But he specifically called out RadioShack's private-label products as being more profitable, and said that the chain will be adding microcontrollers and electronics kits later this year, along with non-mobile-phone consumer electronics aimed at younger customers.

RadioShack bet heavily on mobile phones under former CEO (and before that CFO) James Gooch. But since Gooch's departure late last year, the chain has dismantled its deal for RadioShack mobile-phone kiosks in Target (NYSE:TGT) stores and is looking for higher-margin merchandise. Now that even Apple iPhones are being discounted by Walmart (NYSE:WMT), phones just don't look that attractive.

There are two ironies here. One is that return to electronics hobbyist kits, which are very much a throwback to RadioShack's origins. But RadioShack always comes back to diodes and transistors eventually. In practice, mobile is really just the latest fad that RadioShack has ridden until it wore out its profitability. Anyone with a long enough memory remembers private-label hi-fi equipment, computers, CB radios, remote-control toys and succession of other hot categories that eventually cooled down. RadioShack isn't married to any product category, and that may yet prove the key to its survival.

The other irony: RadioShack is heading out of mobility at the same time Best Buy (NYSE:BBY) is still looking at a big expansion of small-footprint Best Buy Mobile stores. RadioShack looked as if it would be the biggest challenge for Best Buy to overcome (though with RadioShack's notoriously poor customer satisfaction scores, that shouldn't have been so hard to overcome).

But now, phones look like a category that simply can't be profitable enough to run even a mini-chain. Maybe Best Buy CEO Hubert Joly has the right idea: Clean up the stores he's already got, instead of hoping that downscaled phone stores will save his chain. Based on the now-ended Target deal, even RadioShack can't make that work anymore.

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