October 30, 2009

Target taps RadioShack to run cell-phone depts

Business news from Target Stores as they outsource their mobile phone segment. Not unlike their photo and their clinics.

Source Link

Friday, October 30, 2009
Target taps RadioShack to run cell-phone depts.
Minneapolis / St. Paul Business Journal - by John Vomhof Jr. Staff writer
Nancy Kuehn | Minneapolis/St. Paul Business Journal
Cassie Pojanowski stocks Bullseye Mobile Solutions shelves at Target’s downtown Minneapolis store. The department is run by RadioShack’s Kiosk Operations; its employees wear black shirts.

Target Corp. is outsourcing the mobile-phone departments inside its stores to RadioShack Corp.

Kiosk Operations Inc., a wholly owned subsidiary of Forth Worth, Texas-based RadioShack, took over mobile phone sales at about 100 Target stores in Minnesota, California, Georgia, Illinois, New Jersey, Texas and Washington earlier this month. The Target kiosks have been branded as Bullseye Mobile Solutions and are run by Kiosk Operations employees who wear black shirts instead of the red shirts typically worn by Target’s staff.

Minneapolis-based Target plans to expand the concept to all of its roughly 1,700 stores in 2010, spokeswoman Jana O’Leary said. “This provides added convenience for our guests. They can do their Target shopping trip, grab some groceries and address any cell phone needs they may have.”

Customers probably won’t notice much of a change. The kiosks sell Verizon, T-Mobile and AT&T phones and service plans, as well as various prepaid phones and calling cards; those are the same products and services already offered by Target.

This isn’t the first time Target has contracted with a third party to run a department within its stores. Eden Prairie-based Lifetouch Inc. runs Target’s portrait studios and McHenry, Ill.-based Medcor Inc. operates the retailer’s clinics.

Anthony Chukumba, an analyst for FTN Midwest Securities Corp. in Cleveland, said he doesn’t think the new mobile phone partnership with Kiosk Operations “will move the needle a whole heckuva lot for Target in terms of their overall results,” but it’s still important for Target to enhance its presence in the mobile-phone segment.

“It’s something you have to offer to your customer, and if you don’t have the expertise to do it yourself, it makes sense to outsource it to someone else,” he said. “RadioShack has more experience with wireless and likely will do a much better job selling wireless handsets and calling plans than Target would.”

Although it’s not clear how the business relationship between Target and Kiosk Operations works, Michael Pachter, an analyst at Wedbush Morgan Securities in Los Angeles, said Kiosk Operations likely is paying Target to operate in its stores. He speculated that Kiosk Operations might pay Target between $30,000 and $40,000 per year in rent, plus a small cut of its sales, likely less than 10 percent. Pachter estimated that Kiosk Operations generates a profit of roughly $75 for every $300 phone it sells.

“I think Target probably looks at this both as a convenience item for the Target customer and a traffic driver because once you get your phone there you may come back for accessories or whatever, and they want you in the store,” Pachter said.

The mobile-phone market has begun to shift more toward general merchandise and consumer electronics stores instead of stores operated by mobile-phone service providers such as Verizon, Sprint and AT&T, Pachter said. That’s partly because carriers no longer rely on their extensive retail footprints to attract new customers; instead they try to negotiate with manufacturers for the exclusive rights to popular handsets, such as the deal AT&T has with the iPhone.

RadioShack and Richfield-based Best Buy Co. Inc., which added Best Buy Mobile to all of its stores last year, are the retailers that are best positioned to benefit from that shift, but Target and other retailers also could join the fray in the future, Pachter said. “Honestly, I don’t know why Target doesn’t want to do it themselves. One would think that if Best Buy can do it, there’s enough money in it for Target to want to do it themselves, too.”

The deal with Kiosk Operations, however, may be the best way for Target to test the waters in the mobile phone segment without a significant investment, Pachter said, noting that Target could decide to bring those operations in-house after its deal with Kiosk Operations expires. “The more successful it is, the more likely they are to do that.”

Posted by staff at October 30, 2009 11:58 AM