RadioShack's bankruptcy allowed Sprint to partner with General Wireless Inc., a subsidiary of Standard General LP, RadioShack’s largest shareholder (a hedge fund), to increase Sprint branded retail distribution by approximately 1,750 stores, more than doubling Sprint's current 1,100 company store count. The transaction is subject to approval by the bankruptcy court.
The plan at that point will be to establish co-branded (Sprint and RadioShack) stores where Sprint and RadioShack would sell their separate services.
Although it didn't make company's FY3Q14 earnings call deck, it's better late than never.
The deal has many wins for Sprint since:
- Above all, the company expands their distribution base to help with gross additions (postpaid and prepaid brands) and get potential subscribers in the door interested in the much campaigned "Cut Your Bill in Half Event" that will continue into 2015.
- Distribution count will exceed surging rival T-Mobile. In the FY3Q14 earnings call, CEO Claure stated that Sprint was 500-600 less than T-Mobile. With the new stores, gets T-Mobile's count in one swoop, bringing the total Sprint count to over 2,800 retail points of distribution.
- Those 1,750 stores have been cherry picked. Logically, these new stores would not cannibalize existing Sprint retail traffic, and serve the right Sprint target demographic - Verizon and AT&T prime customers.
- The stores will be co-branded but Sprint is the primary brand. Sprint and RadioShack says that each brand's customers may be cross-marketed to but the ability to share lease space costs should not be overlooked. Sprint will only occupy a third of the store space so relative to operating a full store, Sprint in theory has lower costs.
- With all the negativity of a declining brand and controlling costs, headcount cuts have been an unfortunate tool. However, Sprint will need employees to operate these stores. RadioShack employees who are already trained at selling mobile devices and plans are logical candidates. In theory, it's an easy transition as reps will only need to focus on Sprint plans versus the many prepaid MVNO options and those of Verizon and AT&T. In fact, because of the breadth of knowledge, these reps will know what competitors' plan weak points may be.
- Like many deals, the financial and commitment terms were not divulged so it's undetermined how good of a long term financial deal this is.
- The deal needs the blessing of the bankruptcy court and if that is given in short order, this doesn't mean that Sprint can move in immediately. The store rep human resources process will need to be address, planning the look and buildout of a third of every store will need to be done. Given this, the impact of the 2015 gross additions look to be in the back half of the year.
- This last point can be both a positive and negative. By taking over these 1,750 stores, Sprint takes out the same number of distribution points for postpaid rivals AT&T and Verizon (no T-Mobile) and Tracfone prepaid brands (US Cellular in some markets). The big "BUT" is the amount of wireless business a declining RadioShack generated for competitors. If it's immaterial, then it's not that great of a loss for those competitors.
Overall, this deal is one of the best moves Sprint has jumped on since the beginning of CEO Claure's tenure.