Reuters reports that RadioShack has kicked T-Moble USA out of its stores in favor of a more profitable wireless carrier, Verizon Wireless.
The news arrives six months after RadioShack alleged that T-Mobile USA had "materially breached" their contract and that the carrier's product offerings just weren't competitive enough to stand up against local rivals like AT&T and Verizon. Just recently the latter wireless carrier began offering the CDMA version of Apple's highly-coveted iPhone 4 – a smartphone that T-Mobile does not currently offer here in the States.
Still, Radio Shack would not reveal how T-Mobile breached its contract, but merely indicated that terminating its relationship with the carrier was a simpler, faster and cheaper solution to the problem than taking the legal route. Its new deal with Verizon Wireless will begin September 15 and bring postpaid and prepaid wireless products and services to more than 4,300 Radio Shack locations nationwide.
"That is actually a pretty big deal," Wedbush analyst Michael Pachter said, adding that Verizon is a pretty big partner – three times that of T-Mobile USA, in fact. Verizon's larger customer base will be a "boon to the retailer" who apparently has been struggling with weak sales despite its "ubiquitous" nature.
According to Reuters, quarterly profits dropped after weak consumer demand and "cutthroat competition" forced RadioShack into offering more "margin-sapping" discounts. Net income fell to $24.9 million in the second quarter, a dramatic fall from the $53.0 million it claimed in the same quarter in 2010. Sales at the company fell to $941.9 million from the $962.3 million seen in the same period last year. Yet just the mention of its upcoming partnership with Verizon has already jacked up RadioShack's shares a hefty 19-percent.
RadioShack has reportedly been trying to counter weak demand for converter boxes, antennas and other accessories by selling wireless devices and calling plans. And while analysts are optimistic about its new venture with Verizon Wireless, there's concern that the electronics retailer needs to re-brand itself as a destination for mobile phones and cater to younger customers who are unfamiliar with the seemingly forgotten chain.
Back in August 2009, RadioShack tried to re-brand itself as "The Shack" in an attempt to reel in new customers on a more personal level. "Trust is a critical attribute of any successful retailer, and the reality is that most people trust friends, not corporations. When a brand becomes a friend, it often gets a nickname — take FedEx or Coke, for example. Our customers, associates and even the investor community have long referred to RadioShack as 'The Shack,' so we decided to embrace that fact and share it with the world," said Lee Applbaum, RadioShack's chief marketing officer.