Tandy Corporation

views updated May 18 2018

Tandy Corporation

1800 One Tandy Center
Fort Worth, Texas 76102
U.S.A.
(817) 390–3700

Public Company
Incorporated: 1960
Employees: 37,000
Sales: $3.8 billion
Stock Index: New York

How does a small family-owned leather store become one of the world’s leading computer and electronics retailers and manufacturers? The transformation of Tandy is due to the two strong CEOs who have been in charge since the company was incorporated in 1960. Charles Tandy made the company a giant in electronic retailing. His successor, John Roach, spearheaded a move to make the corporation a force to be reckoned with in the personal computer industry.

Charles Tandy’s talent for marketing became evident when he took over the leather store his family had operated since 1919. He began to expand into the hobby market. Subsidiary locations had to be found as mail order and direct sales increased. In 1960, as Scouts and campers all over America made moccasins and coin purses from Tandy leathercraft and hobby kits, the Tandy Corporation began trading on the New York Stock Exchange.

As good as business was, it couldn’t satisfy Tandy’s passion for retailing. By the early 1960s, he began looking for a way to diversify. In 1963, Tandy purchased Radio Shack, a virtually bankrupt chain of electronics stores in Boston. Within two years, Tandy was making a profit on a company that had nearly $800,000 in uncollectibles when he took over. Ten years after starting with nine Boston outlets, the Tandy Corporation was opening two Radio Shack stores every working day. By 1988, there were more than 7,000 Radio Shack stores. According to Tandy estimates, one out of every three Americans is now a Tandy customer.

By all accounts, Charles Tandy was a Fort Worth “good old boy” who stayed in his original office and answered his own phone to the day he died. His CB radio monicker was “Mr. Lucky.” However, analysts don’t think it was just luck that made Tandy Corporation grow. They give much more credit to three key marketing strategies that Charles Tandy developed and implemented.

First, Tandy stressed the importance of gross profit margins. Popular wisdom said a chain store’s profits lay in cutting prices to yield a high sales volume. Tandy thought differently. As far as he was concerned, cutting the profit margin cut the profit. So he maintained market prices but reduced Radio Shack’s 20,000 item inventory to the 2,500 best-selling items.

Second, Tandy kept Radio Shack prices competitive. He eliminated a whole spectrum of middleman costs by limiting stock to private label items. At first, the company established exclusive contracts with manufacturers, but as Radio Shack grew, more and more items were designed and manufactured by associates or subdivisions of the Tandy Corporation. Today, Tandy still manufactures about half of the products sold in its Radio Shack stores. Twenty-five North American and six overseas manufacturing plants produce everything from simple wire to sophisticated microchips, and Radio Shack’s “Realistic” brand name has achieved nationwide recognition.

Charles Tandy’s strategy of pairing high profit margin with high turnover and of in-house marketing and distribution has more than proved itself. The gross profit margin on sales for Radio Shack division has been consistently above 50%.

Even as he consolidated his inventory, Tandy was keenly aware that buyers must know you are in the market. “If you want to catch a mouse,” Tandy was fond of saying, “You have to make a noise like a cheese.” So another Tandy strategy was to go all out on advertising. Especially in the early years, as much as 9% of the corporation’s gross profits went straight back into advertising. For years, Radio Shack’s newspaper ads and flyers were not only frequent but also flamboyant. Bold type and huge letters proclaimed a never-ending series of “super sales.” In more recent times, as Radio Shack and Tandy work on strengthening their Fortune 500 image, the ads have been toned down.

The third arm of Charles Tandy’s strategy was, in the words of one company official, to “institutionalize entrepreneurship.” Tandy Corporation and Radio Shack employees were living testimony that hard work and impressive sales earn their own rewards. Store managers, division vice presidents, and Charles Tandy himself regularly earned eight or ten times their relatively modest salaries through bonuses based on a percentage of the profits they had a direct hand in creating; this policy has spawned some 60 home-grown millionaires.

As Radio Shack’s electronic line grew increasingly central to Tandy, the family leather business became more and more of an anomaly. Finally, in 1975, the leather line and a related wall and floor-covering business were spun off into separate companies.

When Charles Tandy died suddenly in 1978, at the age of 60, pundits and insiders alike wondered if the corporation could survive without its workaholic director and his individualistic marketing philosophy. Philip North, a director of the company and Tandy’s administrative assistant and boyhood friend, stepped in as interim president and CEO of Tandy Corporation.

By his own admission, North knew virtually nothing about the technical side of Radio Shack’s product line. “All I know about electronics is that the funny end of the battery goes into the flashlight first,” he told Fortune magazine. However, North knew plenty about his late friend’s retailing style. Analysts credit him with keeping the corporation’s strong management team together during the adjustment period after Tandy’s death.

During these years, North called more and more on the expertise of John Roach, a man whose scientific and computer background had already attracted Charles Tandy’s attention. Within a few years of hiring him as the manager of Tandy Data Processing, Tandy had made Roach vice president of distribution for Radio Shack. Two years later, in 1975, he rotated him to vice president of manufacturing. Roach was then appointed Radio Shack’s executive vice president immediately after Tandy died, became the Radio Shack division’s president and chief operating officer in 1980, and CEO in 1981. When North retired in July of 1982, Roach became chairman as well.

Roach’s major contribution has been masterminding Tandy’s entry into the computer market. Before Charles Tandy’s death, Roach had talked him into venturing into the preassembled computer market. The sale of 100,000 computers between September 1, 1977 and June 1, 1979 kept Radio Shack comfortably in the black even as the bottom dropped out of the citizens-band radio market.

As Roach moved up the corporate structure, he intensified investment in computers. In 1982, less than a year after becoming CEO, Roach was singled out as “the best of the best” by Financial World, which lauded Roach as “the driving force at “the front-running company in the red-hot personal computer race.”

Within a short time, however, there were rumblings that the driving force in this hot race might have been burned. By 1984, Radio Shack’s impressive 19% market share had plummeted to under 9%.

One of Tandy’s problems was an outgrowth of Charles Tandy’s policy limiting Radio Shack to private label items, preferably manufactured by one of Tandy’s subsidiary divisions. As software and applications software poured out for Apple and IBM-compatible systems, fewer and fewer serious computer users were willing to limit themselves to software designed exclusively for Radio Shack’s TRS-80, or “Trash-80”, as some sneeringly referred to it. In fact, Tandy found that even a superior machine couldn’t overcome the software handicap. Officials at the company were shaken to find they simply couldn’t sell their 1983 Model 2000, even though it was three times as fast as IBM’s own P.C, because it couldn’t run half of the available IBM software.

In addition, Radio Shack’s marketing strategies had a vulnerable side. Company policy was to let other retailers test the waters with items like stereos, CB radios and “fuzz buster” radar detectors. Then Tandy would take over a significant part of the market by introducing a house brand it advertised intensively. However, it’s not always possible to know what will boom when, and when Radio Shack simply did not have stock on hand when the VCR market exploded in the mid-1980s—the same time the computer market was drying up—both sales and revenues fell at an alarming rate.

That crisis lead Tandy to modify its policy. In 1984, the company introduced two new computers that were fully IBM-compatible, and exchanged the TRS label for Tandy. Radio Shack management then set about underselling its Big Blue competitor. Such price competition was a departure from previous marketing strategy, but because Tandy’s own in-house manufacturing divisions still produce virtually all the components, from wire to plastic boards to microchips, Tandy has been able to keep profits up.

While it has never regained its initial share of the PC market, Tandy has consistently held first place among IBM-compatibles since it entered the field in 1985. Tandy regained its place in the computer market by offering the buyer significant savings over IBM and other compatibles. At the same time, Roach also oversaw a wholesale revamping of the company’s image. Ordinary Radio Shack stores were given a face-lift. To overcome the reluctance of serious business customers to take a computer shelved next to a CB or electronic toy seriously, Roach established a series of specialized Radio Shack Computer Centers, providing a level of support and service that earned a “Hall of Fame” award from Consumer’s Digest in 1985.

Tandy continues to pour money into research and development to assure that they won’t be left behind again by new developments in the computer field. Its 1988 acquisition of GRiD Systems Corporation is a good example of current policy. GRiD’s ability to manufacture and market field automation systems using laptop computers opens a whole new area of expansion into government and Fortune 1000 marketing companies.

Tandy has also continued to maintain a high profile in the consumer electronics market outside of computers. The company is putting special emphasis on becoming a major force in both manufacturing and retailing cellular telephones, which it sees as a major consumer product of the 1990s. Another Tandy project—the development of an erasable and recordable compact disc—is also commanding a great deal of interest in the consumer electronics industry.

In many ways, today’s Tandy Corporation is simply an expansion of what it was at Charles Tandy’s death. It centers its manufacturing and marketing firmly around computers and consumer electronics which it retails primarily through its Radio Shack outlets.

Nonetheless, there have been some significant deviations from Charles Tandy’s heritage recently. In 1985 the company entered the name brand retail market with the acquisitions of Scott-McDuff and Videoconcepts, two electronic equipment chain stores. The 290 stores in the Tandy Brand Name Retail Group do not follow the Radio Shack policy of selling exclusively private label brands. Other subsidiaries in the Tandy Marketing Companies also have developed much broader distribution channels. Memtek products, which include Memorex brand audio and video tape products and related accessories, are available virtually everywhere such products are sold.

Tandy has also made a recent push to sell its computers outside of Radio Shack stores. In 1985, the company edged into broader markets by offering its computers on college campuses, military bases, and through special offers to American Express cardholders. In 1988, Tandy test-marketed selling its 100SX computer line through 50 Wal-Mart stores. The company also announced plans to develop new computers with Digital Equipment and to resell the finished product under the DEC name and to supply personal computers to Panasonic to be sold under the Panasonic name.

Some dealers see broadening computer distribution outside Radio Shack stores as a potentially lethal threat. Many Radio Shack stores depend on their computer business for a significant portion of sales and doubt whether they can survive if customers begin to shop around, looking for the same Tandy products for less elsewhere. In August of 1988, a small group of dealers formed the Radio Shack Dealers Association and began considering a class action suit against Tandy. While the company hopes to work out these issues, Tandy Corporation remains firmly committed to broadening its distribution channels.

Tandy’s foundation is and will continue to be its Radio Shack retail outlets, but beyond remodeling its 7,000 stores and refining their retail strategies, Tandy’s own success has left little room for growth. The company’s future lies in its commitment to finding new distribution channels for the products it manufactures and to retailing brand name, discount electronics. As both of these ventures are new to Tandy’s whole corporate philosophy, success will depend on Tandy’s traditionally strong management team. No one can say how Charles Tandy would regard the changes his company has seen or the challenges it faces, but it seems fair to guess that he would have no quarrel with the outcome so far.

Principal Subsidiaries:

Tandy Credit Corp.; O’Sullivan Industries, Inc.; Tandy Electronics, Inc.; A & A International, Inc.

International Directory of Company Histories

Tandy Corporation

views updated Jun 11 2018

Tandy Corporation

800 One Tandy Center
Fort Worth, Texas 76102
U.S.A.
(817) 390–3700
Fax: (817) 390–3500

Public Company
Incorporated: 1960
Employees: 37,000
Sales: $4.1 billion
Stock Exchanges: New York
SICs: 5731 Radio, Television & Electronics Stores; 6794
Patent Owners & Lessors; 3651 Household Audio &
Video Equipment; 3571 Electronic Computers

Tandy Corporation is one of the world’s leading computer and electronics retailers. The transformation of Tandy from a small family owned leather store into an electronics giant was primarily due to the two strong CEOs who have been in charge since the company was incorporated in 1960. Charles Tandy made the company a giant in electronic retailing. His successor, John Roach, spearheaded a move to make the corporation a force to be reckoned with in the personal computer industry.

As good as business was, it couldn’t satisfy Tandy’s passion for retailing. By the early 1960s, he began looking for a way to diversify. In 1963, Tandy purchased Radio Shack, a virtually bankrupt chain of electronics stores in Boston. Within two years, Tandy was making a profit on a company that had nearly $800,000 in uncollectibles when he took over. Ten years after starting with nine Boston outlets, the Tandy Corporation was opening two Radio Shack stores every working day. By 1988, there were more than 7,000 Radio Shack stores, and, according to Tandy estimates, one out of every three Americans was a Tandy customer.

By all accounts, Charles Tandy was an modest man from Fort Worth, who stayed in his original office and answered his own phone until the day he died. While his CB radio moniker was “Mr. Lucky,” Tandy’s success was, according to analysts, due to more than just luck. They gave much more credit to three key marketing strategies that Charles Tandy developed and implemented.

Second, Tandy kept Radio Shack prices competitive. He eliminated a whole spectrum of middleman costs by limiting stock to private label items. At first, the company established exclusive contracts with manufacturers, but as Radio Shack grew, more and more items were designed and manufactured by associates or subdivisions of the Tandy Corporation. In the late 1980s, Tandy still manufactured about half of the products sold in its Radio Shack stores. Twenty–five North American and six overseas manufacturing plants produced everything from simple wire to sophisticated microchips, and Radio Shack’s “Realistic” brand name had achieved nationwide recognition.

Charles Tandy’s strategy of pairing high profit margin with high turnover and of in–house marketing and distribution more than proved itself. The gross profit margin on sales for Radio Shack division has been consistently above 50 percent.

Even as he consolidated his inventory, Tandy was keenly aware that buyers must be aware of a company’s presence. “If you want to catch a mouse,” Tandy was fond of saying, “you have to make a noise like a cheese.” So another Tandy strategy was to go all out on advertising. Especially in the early years, as much as nine percent of the corporation’s gross profits went straight back into advertising. For years, Radio Shack’s newspaper ads and flyers were not only frequent but also flamboyant. Bold type and huge letters proclaimed a never–ending series of “super sales.” In more recent times, as Radio Shack and Tandy worked on strengthening their Fortune 500 image, the ads were toned down.

The third arm of Charles Tandy’s strategy was, in the words of one company official, to “institutionalize entrepreneurship.” Tandy Corporation and Radio Shack employees were living testimony that hard work and impressive sales earn their own rewards. Store managers, division vice–presidents, and Charles Tandy himself regularly earned eight or ten times their relatively modest salaries through bonuses based on a percentage of the profits they had a direct hand in creating; this policy spawned some 60 home–grown millionaires.

As Radio Shack’s electronics line grew increasingly central to Tandy, the family leather business became more and more of an anomaly. Finally, in 1975, the leather line and a related wall and floor–covering business were spun off into separate companies.

By his own admission, North knew virtually nothing about the technical side of Radio Shack’s product line. “All I know about electronics is that the funny end of the battery goes into the flashlight first,” he told Fortune magazine. However, North knew plenty about his late friend’s retailing style. Analysts credited him with keeping the corporation’s strong management team together during the adjustment period after Tandy’s death.

During these years, North called more and more on the expertise of John Roach, a man whose scientific and computer background had already attracted Charles Tandy’s attention. Within a few years of hiring Roach as the manager of Tandy Data Processing, Tandy had made Roach vice–president of distribution for Radio Shack. Two years later, in 1975, Roach became vice–president of manufacturing. Roach was then appointed Radio Shack’s executive vice–president immediately after Tandy died, became the Radio Shack division’s president and chief operating officer in 1980, and CEO in 1981. When North retired in July 1982, Roach became chairman as well.

Roach’s major contribution was in masterminding Tandy’s entry into the computer market. Before Charles Tandy’s death, Roach had talked him into venturing into the preassembled computer market. The sale of 100,000 computers between September 1, 1977 and June 1, 1979 kept Radio Shack comfortably in the black even as the bottom dropped out of the CB radio market.

As Roach moved up the corporate structure, he intensified investment in computers. In 1982, less than a year after becoming CEO, Roach was singled out as “the best of the best” by Financial World, which lauded Roach as “the driving force at the front–running company in the red–hot personal computer race.”

Within a short time, however, there were rumblings that the driving force in this hot race might have been burned. By 1984, Radio Shack’s impressive 19 percent market share had plummeted to under nine percent. According to some critics, one of Tandy’s problems resulted from Charles Tandy’s policy of limiting Radio Shack to private label items, preferably manufactured by one of Tandy’s subsidiary divisions. As software and applications software poured out for Apple and IBM–compatible systems, fewer and fewer serious computer users were willing to limit themselves to software designed exclusively for Radio Shack’s TRS–80, or “Trash–80”, as some sneeringly referred to it. In fact, Tandy found that even a superior machine couldn’t overcome the software handicap. Officials at the company were shaken to find they simply couldn’t sell their 1983 Model 2000, even though it was three times as fast as IBM’s own PC, because it couldn’t run half of the available IBM software.

In addition, Radio Shack’s marketing strategies had a vulnerable side. Company policy was to let other retailers test the waters with items like stereos, CB radios, and “fuzz buster” radar detectors. Then Tandy would take over a significant part of the market by introducing a house brand it advertised intensively. However, it’s not always possible to know what will boom and when, and when Radio Shack simply did not have stock on hand when the VCR market exploded in the mid-1980s—the same time the computer market was drying up— both sales and revenues fell at an alarming rate.

That crisis lead Tandy to modify its policy. In 1984, the company introduced two new computers that were fully IBM–compatible and exchanged the TRS label for Tandy. Radio Shack management then set about underselling its Big Blue competitor. Such price competition was a departure from previous marketing strategy, but because Tandy’s own in–house manufacturing divisions still produced virtually all the components, from wire to plastic boards to microchips, Tandy was able to keep profits up.

While it never regained its initial share of the PC market, Tandy consistently held first place among IBM–compatibles since it entered the field from 1985 to 1990. Tandy regained its place in the computer market by offering the buyer significant savings over IBM and other compatibles. At the same time, Roach also oversaw a wholesale revamping of the company’s image. Ordinary Radio Shack stores were given a face–lift. To overcome the reluctance of serious business customers to take a computer shelved next to a CB or electronic toy seriously, Roach established a series of specialized Radio Shack Computer Centers, providing a level of support and service that earned a “Hall of Fame” award from Consumer’s Digest in 1985.

Tandy continued to pour money into research and development to assure that they wouldn’t be left behind again by new developments in the computer field. In 1988 it acquired GRiD Systems Corporation, an innovator in the burgeoning laptop computer market. GRiD’s ability to manufacture and market field automation systems using laptop computers opened a whole new area of expansion into government and Fortune 1000 marketing companies. Sales in GRiD’s first year as a Tandy subsidiary exceeded expectations and helped underscore Tandy’s image as a leader in personal computer technology by introducing innovations such as hand writing recognition and removable hard disc drive cartridges. In 1989, Tandy acquired the European marketing operations of Victor Microcomputer and Micronic, two respected microcomputer manufacturers. Merged under the name Victor Technologies Group, Tandy used the subsidiary to market GRiD products throughout Europe.

Tandy continued to maintain a high profile in the consumer electronics market outside of computers. In the late 1980s, the company put special emphasis on becoming a major force in both manufacturing and retailing cellular telephones and home computers, which it saw as a major consumer product of the 1990s. Extensive efforts also went into the development of more business–oriented technology, including multimedia applications and digital recording. The latter resulted in the development of an erasable and recordable compact disc that commanded a great deal of interest in the electronics industry.

In many ways, during the 1980s, the Tandy Corporation had simply expanded on Charles Tandy’s philosophies. The company centered its manufacturing and marketing firmly around computers and consumer electronics which it retailed primarily through its Radio Shack outlets. Nonetheless, there were some significant deviations from Charles Tandy’s views during the late 1980s. In 1985 the company entered the name brand retail market with the acquisitions of Scott–McDuff and Video–concepts, two electronic equipment chain stores. The 290 stores organized under the Tandy Brand Name Retail Group did not follow the Radio Shack policy of selling exclusively private label brands. Other subsidiaries in the Tandy Marketing Companies also began to develop broader distribution channels. Memtek products, which included the Memorex brand of audio and video tapes, became available virtually everywhere such products were sold.

Tandy also made a push to sell its computers outside of Radio Shack stores. In 1985, the company edged into broader markets by offering its computers on college campuses, military bases, and through special offers to American Express cardholders. In 1988, Tandy test–marketed its 100SX computer line through 50 Wal–Mart stores. The company also announced plans to develop new computers with Digital Equipment Corporation (reselling the finished product under the DEC name) and to supply personal computers to Panasonic (which would be sold under the Panasonic name).

Some Radio Shack dealers saw Tandy’s move to broaden its computer distribution as a potentially lethal threat. Many Radio Shack dealers depended on their computer business for a significant portion of sales and doubted whether they could survive if customers began to shop around, looking for the same Tandy products for less elsewhere. In August 1988, a small group of dealers formed the Radio Shack Dealers Association and began considering a class action suit against Tandy.

Tandy’s foundation at the time was its retail outlets. But beyond remodeling its 7,000 Radio Shack stores and refining retail strategies, by the late 1980s, Tandy’s own success had left its retail divisions with little room for growth. In 1989, Tandy posted record earnings. Business at Radio Shack Stores, however, continued to decline, while sales in Tandy’s subsidiaries GRiD, Memtek, Lika, and O’sullivan Industries grew by over 50 percent.

In the early 1990s, with its non–retail segment growing steadily, Tandy turned its attention to boosting its retail division. Leading the way were its McDuff and Video Concept Stores, which experienced an average of 14 percent same–store sales growth in 1989 and 1990. Tandy began a rapid expansion project, more than doubling the number of stores to 380 by fall of 1991.

However, Radio Shack continued to feel the effects of a soft consumer electronics market. Tandy responded by closing its Radio Shack Computer Center chain and by instituting an extensive marketing strategy that emphasized the high quality of both Radio Shack products and service. In June 1991, Tandy announced plans to open Computer City, a new chain of computer superstores that was the first to offer IBM, Hewlett–Packard, Apple, Compaq, and Tandy computers, accessories, and software all under one roof. With its new 1000RL, a home computer system developed specifically for family use, Tandy went head–to–head against IBM for the home computer market, betting that this industry segment would grow by ten percent annually in the 1990s.

Tandy also opened The Edge in Electronics, a chain of upscale consumer electronics “boutiques” designed to complement Radio Shack’s moderately priced goods. However, its biggest new foray into consumer electronics retail came with the 1992 launch of Incredible Universe, an elaborate 160,000 square–foot consumer electronics mini–mall, complete with child care centers, karoke contests, a recycling center, and a restaurant. According to Tandy literature, Incredible Universe was patterned after “Disney’s famous theme–park style of customer service. The store experience is called ‘the show,’ employees are known as ‘cast members’ and customers are the ‘guests’.” Its $9 million inventory included everything from ten brands of computers to 300 different television sets and over 40,000 music and video movie titles.

The company took an enormous risk with opening Incredible Universe. Industry analysts predicted that each new store would have to turn over a volume of $100 million annually to remain profitable. Tandy committed itself entirely to the new venture. In 1993, it restructured its entire operations to focus on retailing and, in a bold move, sold all its manufacturing operations. Victor, Tandy, and GRiD were sold to AST Research, Inc. for $201 million. O’sullivan Industries, its successful furniture manufacturing arm, was spun–off to raise $350 million. Memtek Products was sold to Hanny Magnetics for $128 million, and plans were made to sell Lika’s manfacturing facilities for cash and notes.

Tandy then devoted its energies to polishing its image and expanding is base as an electronics retailer. Incredible Universe became a separate division and plans were announced to open 50 units by the year 2000. Computer City, which posted over $600 million in annual sales in its second year of operation, announced plans to open 20 new stores by the end of 1994. Radio Shack improved merchandising and service in its 6,500 locations and hired the agency Young & Rubicam to design a new advertising campaign. For the first time since the early 1980s, Radio Shack posted eight straight months of in–store sales growth. The Tandy Brand Name Retail Group’s McDuff s and Video Concepts stores grew to become two of the biggest home appliance and electronics appliance retailers in southeastern and south central United States.

In less than two years, Tandy transformed itself from a longstanding supplier and retailer of consumer electronics into a high–image conglomeration of electronics “superstore” chains. Merchandising and marketing became the company’s primary focuses. While marketing had been the cornerstone of Tandy’s early corporate philosophy, success in new ventures— particularly Incredible Universe—would depend on the skills of Tandy’s traditionally strong management team. While no one can say how Charles Tandy would regard the changes his company has seen or the challenges it faces, it seems fair to guess that he would have no quarrel with the outcome so far.