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RadioShack Is Now Selling in Unexpected Places. Will Anyone Buy? After hanging on through two bankruptcies, RadioShack struck a deal to open small locations inside a franchise called HobbyTown. Now, the question: Will this help or hurt both brands?

By Clint Carter

entrepreneur daily

This story appears in the December 2018 issue of Entrepreneur. Subscribe »

Courtesy of HobbyTown

A brown delivery box on wheels stops outside a HobbyTown in Fairfield, Conn. A muscular, bald-headed UPS driver hops down from the seat, marches into the low-slung building, and plunks a 17-pound box next to the register. With a nod, he's gone, and Marc Rosenblum, the store's owner, darts over to inspect the package.

"This is it!" he said. "It's my first RadioShack reorder."

He pulls back the cardboard flaps to reveal a nest of curios wrapped in plastic: resistors, circuit boards, radial-lead electrolytic capacitors. The box's 86 items could pass as robot guts. "I don't know what this is," Rosenblum said, holding up a ceramic bead wrapped in copper wire. "But I don't need to know what it is to sell it."

Rosenblum opened his HobbyTown 11 years ago. For nearly a decade, a RadioShack sat a few doors down. "I used to send people there when they came in looking for stuff like this," he said, nodding at the box. But two years ago, that store shut down, and he started directing customers to another RadioShack across town.

Then that store closed, too, and Rosenblum did what every brick-and-mortar retailer hates to do: He told shoppers to look online.

At its peak in 2001, RadioShack had nearly 7,400 stores. But by 2017, after barely surviving its second Chapter 11 bankruptcy, the last of the company's corporate shops shut down, and what remained were 400 independent RadioShack dealers, some located in computer repair stores and hardware stores, operating in rural areas. For a brand with nearly 100 years of history, the collapse was nothing short of spectacular.

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In July 2018, RadioShack made an announcement that looked like a much-needed life raft: It was partnering with the HobbyTown franchise, and owners like Rosenblum would begin opening RadioShack stores-within-stores -- dubbed RadioShack Express -- to reestablish the electronics retailer in the metropolitan areas it had vacated.

The deal is simple: In exchange for an initial wholesale purchase of roughly $2,000 to $4,500 and a commitment to support the inventory with a small amount of dedicated shelf space, any HobbyTown franchisee gets a direct pipeline to the thousands of products RadioShack has curated over decades. RadioShack provides signage and advice on which items to stock, and franchisees receive hearty margins on each sale; Rosenblum's average is 51 percent.

In entering this partnership, the two brands are joining an ever-growing trend in the franchising world: brands shacking up, one setting up shop inside the other, and hoping sales happen better together. But do they? Results across the industry are mixed. The payoff for RadioShack here is easy to quantify -- by signing 77 of HobbyTown's 137 franchise stores, it has already increased its dealer network by 19 percent -- but success for HobbyTown will be harder to measure. The company's core product line consists of radio-controlled cars and helicopters, drones, model trains, and pinewood derby cars. Building a new clientele of DIY tinkerers is bound to take time, and in the process, the RadioShack aisle could confuse customers, or waste precious retail space, or make customers wonder if HobbyTown is struggling alongside RadioShack.

But Bob Wilke, HobbyTown's president, is optimistic. "RadioShack's customer demographic is so similar to ours," he said. "They're do-it-yourselfers, makers. This just makes sense."

Now the two brands will find out just how much sense it makes to join together.

If you ask Steve Moroneso, CEO of RadioShack, why he first walked into his local HobbyTown in Fort Worth, Tex., he'll tell you he was looking for a replacement part for a slot car. But after finding the part, he lingered. He took note of HobbyTown's product line and considered the gaps that RadioShack could fill. Back in his office, he did some research and discovered that HobbyTown stores were concentrated in cities with at least 100,000 people -- the exact markets RadioShack had exited.

Moroneso's team developed an inventory list he believed would work on HobbyTown shelves, and he fired off an email to Wilke, HobbyTown's president. His timing was perfect: Wilke was already encouraging franchisees to develop store-within-store partnerships with top-performing brands. Select HobbyTowns were running pilot programs with Hasbro for toys and games, Traxxas for radio-controlled vehicles, and Lionel for model trains.

These partnerships generated healthy sales, but they were borne straight from HobbyTown's core inventory. A thorough range of electrical components represented an entirely new category -- one that HobbyTown franchisees had been asking about since RadioShack's demise, and one that HobbyTown couldn't launch on its own. "We wouldn't immediately have the knowledge and expertise on what the customer was looking for," said Wilke. "It would take a long time of trial and error before we'd figure out that inventory."

Wilke liked Moroneso's pitch and suggested the RadioShack CEO send someone out to Lincoln, Nebr., for HobbyTown's annual owners' convention to meet with franchisees. In mid-July, Matt Eisner, RadioShack's director of sales and strategy, flew from Fort Worth and made his pitch. "We have an overlapping customer base," he told his audience. "But we have very different product lines, which is what makes this partnership such a perfect fit."

A full-size RadioShack carries 2,000 to 2,500 SKUs, but Eisner's offer consisted of just 400 to 700 products selected specifically for HobbyTown's customer. Anticipating some reservation about RadioShack's health on the back side of two bankruptcies, Eisner explained that the company's website still receives between 850,000 and one million visits a month. Some 300,000 of those visitors click through to the store locator. HobbyTown franchisees could find themselves in those search results.

His presentation lasted five minutes, and afterward, he retreated to a booth. He hoped 50 people would come by, but it seemed like everybody was interested. By the time he signed 60 stores, he started shuffling contracts into a waiting-­list pile. The surge would be too much for RadioShack to ship at once. "HobbyTown owners were so excited to get going, they were contacting me on a near-daily basis," said Eisner.

Within days, inventory left the RadioShack warehouse in Fort Worth. By the end of the month, Rosenblum was selling electrical components, and the day his store listing went live on RadioShack's website, he received half a dozen related calls. He'd answer by saying, "HobbyTown!" And people would reply, "HobbyTown? I thought this was RadioShack."

Like Rosenblum, Steve Noel was in the first cohort of 60 HobbyTown franchisees to open a RadioShack Express, his just outside Chicago. During his first month, he sold about $1,000 of inventory. "It doesn't sound like much," he said. "But we're doing those sales $4, $5, and $6 at a time. It's been a fair amount of transactions, and it's introducing our store to a whole new audience."

And new customers are what HobbyTown is looking for. This is a long game -- and the franchisees know it. "With any luck," said Noel, "we'll turn that $5 RadioShack purchase into a $1,000 drone purchase down the line."

A few feet of shelf space in another company's stores might not seem like much to celebrate, but when you consider that RadioShack has spent the past decade marching toward the gallows, it feels like a complete rebirth. The company's first bankruptcy was in 2015, and two years later, the business that bought it out of bankruptcy also filed bankruptcy. "It has been a challenge for the brand," said Moroneso. "But there's always been a core business that has done well."

The first RadioShack opened in Boston in 1921, and the company grew slowly until 1968, when it started franchising. In 1977, it launched one of the first mass-market personal computers, but when heavy hitters like Dell and IBM took control of that exploding industry, RadioShack struggled to keep up. In a bid to stay relevant, it shifted its focus to batteries, refurbished electronics, and audio and video components.

In the early aughts, RadioShack grew a healthy cellphone business -- but as Sprint and AT&T took more control of the plans and phones, the company once again lost its footing. And by then, it had all but phased out what had become its core product line. "If you wanted a ham radio or an antenna, they might not even have the inventory anymore," said Alexander Rosado-Serrano, an international franchise specialist and a professor at the Inter-American University of Puerto Rico. "They'd changed the whole store."

RadioShack reported a $400 million loss in 2013. The next year, it tried to reinvent itself with a 30-second Super Bowl ad that features a baffled store clerk holding a phone, saying, "The eighties called. They want their store back." After Alf, Kid 'n Play, and members of Devo ransack the place, we see a flash of the new RadioShack: a clean, white Apple rip-off.

The makeover was a failure, and RadioShack announced that it was closing 1,100 stores. When it entered bankruptcy the following year, it had $1 billion in debt and 11 quarters of loss.

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At the same time, Hobby­Town was enduring its own struggles. Between 2015 and 2017, the company shut down 38 of its 161 stores. But it also opened 26 new locations. Considering the recent string of retail casualties -- some 2,000 closures among Payless, Sports Authority, and Toys "R" Us alone -- HobbyTown's minor attrition could be seen as an outright victory for the 38-year-old brand. "The stores that closed were the weaker ones," said Rosenblum. "And the ones that are opening up are new and shiny."

The RadioShack partnership could apply its own sort of polish -- if HobbyTown consumers respond. "Stores-within-stores are successful when the two brands deliver a synergistic impact on customer experience," said Vishag Badrinarayanan, Ph.D., a professor of marketing at the McCoy College of Business at Texas State University. "Ideally, a store-within-store will serve unmet needs for a host retailer's current customers."

Department and big-box stores have done this for years. Consider the Sephora store in JCPenney and the Nike Field House inside Dick's Sporting Goods. In Best Buy alone, you might find stores from Sony, Samsung, Microsoft, Pacific Home and Kitchen, and Magnolia.

In a study currently under review, Badrinarayanan found that these partnerships work best when customers judge them as a natural fit. "You go to Barnes & Noble and there's a Starbucks inside," he said. "Now I can drink coffee while I read my book." But if that Starbucks were replaced with, say, a Buffalo Wild Wings, readers might think less of the bookseller.

But judging what customers will deem an organic pairing is often more art than science, and brands don't always get it right. In 2012, Target execs anticipated huge sales from its in-store partnership with Neiman Marcus, but its bargain-adapted clientele ultimately rejected the designer goods. After a disappointing holiday season, Target marked down the entire line 70 percent before phasing it out entirely.

Failure aside, there is the chance that RadioShack's bad press could have an insidious effect on how customers view HobbyTown. According to a small study published last year by researchers at Canada's University of Lethbridge, consumers presented with store-within-store arrangements are unlikely to transfer positive feelings about the tenant (in this case, RadioShack) onto the host (HobbyTown). But they will transfer their negative feelings. If customers believe that RadioShack is a rotten apple, they could start to smell the stink in HobbyTown, as well.

So perhaps it's wise that not all HobbyTown owners are signing up for the partnership just yet. Pete Zellmer was at the franchisee convention when Eisner presented RadioShack's pitch, and at first blush, he was impressed. "HobbyTown is a national chain, but we don't have tremendous brand recognition," he said. "But RadioShack -- everybody knows that name." Zellmer invited Eisner to come by his store in Plano, Tex., to continue the conversation. What he was looking for was proof of concept, but since the initiative is brand-new, Eisner couldn't point to any major triumphs. "There wasn't a lot for him to talk about," said Zellmer.

In a final act of due diligence, Zellmer visited the only other store where he could think to find resistors and capacitors: his local Fry's Electronics, a big-box retailer just a mile away. "I walk in and go to the section that carries these little widgets," he said. "It's the size of my entire store." If he were to dedicate floor space to RadioShack product, this would be his competition. "I'm just going to wait and see," he said. "Next year I'll revisit this after I can talk to other shop owners who have had some experience."

Not all HobbyTowns are next to a Fry's, of course. Rosenblum's certainly isn't. And right now, his enthusiasm represents the majority opinion among the franchisees.

When asked if he could imagine the RadioShack banners that hang outside HobbyTowns replaced with permanent Radio­Shack signage on the marquee, Moroneso signals that he's one step ahead: "We've already discussed it with HobbyTown, and they're in favor of it. When the franchisees are ready, we'll do it."

Back at his store in Fairfield, franchisee Marc Rosenblum is starting small. He has cleared just 16 feet of shelf space within his 4,000-square-foot store to stock 450 RadioShack products. It would be easy to miss if not for three signs, each one seven square feet, hanging just above the half-length of the aisle. But now when shoppers come in looking for rectifier diodes and nine-volt snap connectors, Rosenblum doesn't have to turn them away. In fact, just as he finishes tagging his RadioShack reorder with price stickers, exactly this kind of customer walks in. "You have RadioShack?" asks the man in an Eastern European accent, sunglasses propped up on his head, and a chunky Bluetooth headset around his neck.

"Right over there," Rosenblum says, pointing to the signs.

The customer, Villi Vartanov, tried visiting the old RadioShack before realizing it wasn't there. He found HobbyTown through RadioShack's online store locator, just as RadioShack had promised. "I need a battery for a Magellan," he says.

Related: The Fates of 21 Retailers Who Filed Chapter 11

Vartanov's Magellan GPS unit is ancient by tech standards, and Rosenblum knows he doesn't have parts for it. "Your best bet is probably to look online," he admits with an apologetic shrug.

But Vartanov keeps walking. "Takes too long," he says, and he hunkers down among the electronics, determined to find something he can rig together. He returns to ask if this HobbyTown/RadioShack carries rechargeable batteries. No, says Rosenblum: Rechargeables don't deliver high enough voltage for his HobbyTown customers, and he's still learning what his RadioShack customers want. Vartanov frowns but doesn't give up. He ducks back into the aisle and emerges carrying a screwdriver set, solder, and solder cleaner alongside his battery case. It's a $30 purchase that provides everything he needs to Frankenstein a new battery for his Magellan.

At the checkout counter, he admits he'd never been in the store before. But he's glad to know it's here. "That happens a lot," Rosenblum said. "We're bringing people into the store for the first time. And as a brick-and-mortar, that's what we're after."

Clint Carter is a writer and editor based in New York City. In addition to Entrepreneur, his work appears in Men’s HealthMen’s Journal, Wall Street JournalRolling Stone, and New York magazine. He’s on Twitter and Instagram as @clintlcarter.

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