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September 14, 2011 at 12:15 PM EDT
DIY Mobile: RadioShack’s Potential for Finding an Untapped Market
RadioShack could play the down economy by catering to thriftier consumers through DIY, repair retail.

RadioShack RSHAt the beginning of 2011, it looked like RadioShack‘s (NYSE:RSH) reinvention as a low-cost mobile phone retailer that dabbled in other electronics was finally yielding results, providing the company with a strong base of revenue growth. Earnings for the first quarter were up 4% year-on-year, with revenue totaling just more than $1 billion, and same-store sales grew to almost 5%.

However, the company didn’t fare as well in the second quarter. Profits were more than halved year-on-year, falling from $53 million in 2010 to just below $25 million in 2011. Revenue totaled $943 million, making for the retailer’s single-worst quarter in terms of revenue since 2007.

RadioShack has gone cheap and small with its retail efforts, developing outlets like its mobile kiosks at Target (NYSE:TGT). It has focused on connected mobile devices as consumers have spent less on fewer technology purchases. It has cut costs by closing its manufacturing plant in China and consolidating. But it hasn’t been enough. With the company projecting EPS either flat or below last year’s take for the third and fourth quarters of the year, it’s time for RadioShack to try something else.

With a recession-conscious consumer populace that’s willing to spend on mobile products, RadioShack isn’t without options. The key might be in making the company’s mobile business more thrift-focused. RSH could do this by repurposing its faded identity as a do-it-yourself retailer.

Back in May, RadioShack — via its official blog — announced RadioShackDIY.com: a new initiative to recapture consumers that would visit the company’s store for electrical components, wire and cabling, fuses and other wares to build their own gear. It kicked off a promotion called “The Great Create” to build a community online, with customers showing off homemade goods built from in stick prices. The idea is sound, actually. Companies like AutoZone (NYSE:AZO) and Home Depot (NYSE:HD) are thriving despite decreases in consumer spending by appealing to do-it-yourselfers hoping to save money by repairing, not replacing.

RadioShack is thinking too small in its ambition, though. Rather than keep the mobile device business that has kept the company just above water in recent months, as well as its attempt to build community through DIY electrical parts sales, it could fuse the two into a single business. The company could encourage its customers, through promotions like “The Great Create,” to learn how to repair their mobile phones or tablet PCs when they’re no longer under warranty.

RadioShack could even make an effort to educate its customers on how to modify their mobile phones to run apps outside of set App Stores like Research in Motion‘s (NASDAQ:RIMM) BlackBerry App World or Apple‘s (NASDAQ:AAPL) App Store. “Jailbreaking” mobile phones — modifying them to run apps and perform outside the manufacturer’s settings — was declared legal by the U.S. government in July 2010, and it’s a service that mobile providers like China Unicom (NYSE:CHU) offer to its customers upon signing up. RadioShack would be tapping a chunk of the mobile market untouched by competing electronics retailers like Best Buy (NYSE:BBY).

Of course, RadioShack would need the support of Verizon (NYSE:VZ) to pursue this strategy. RSH actually rallied from the $13 range to around $16 the day it released its second-quarter results — also the same day it announced its new partnership with Verizon, replacing its long-time partnership with T-Mobile USA. Shares quickly crumbled again, though, hitting a 52-week low of $11.50 in August. With such a tenuous floor, investors at least need Verizon to stay friendly with RadioShack. Any DIY-meets-mobile push would need to satisfy not only Verizon, but its many manufacturing partners as well. But the reward might be worth the risk for RadioShack.

As of this writing, Anthony John Agnello did not own a position in any of the stocks named here. Follow him on Twitter at @ajohnagnello and become a fan of InvestorPlace on Facebook.


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