Last week, RadioShack (NYSE:RSH) released its preliminary earnings for Q4 2011. It expects its Q4 2011 gross margin to be approximately 35%, lower than the 41% in Q4 2010. It has attributed it to a shift toward lower-margin smartphones and mobile devices and the effect of promotions over the holidays. RadioShack has also reset expectations for 2012 amid a challenging economic environment and intense competition from other players. It expects lower bottom-line numbers for 2012 compared to 2011 and anticipates a challenging first quarter this year. Investors have reacted negatively to this news and its stock price has plunged approximately 30% following the release.
To offset these pressures, RadioShack is taking several initiatives to attract customers to its stores. In order to fight intense competition posed by the online players like Amazon (NASDAQ:AMZN) and eBay, it has launched a new low price guarantee scheme for mobile phone purchases starting this month. This scheme assures customers that they are getting the best available deals.
RadioShack has promised to match competitors’ newspaper and circular pricing on similar postpaid and no-contract mobile phones at the time of purchase and for up to 30 days after the purchase. We believe this scheme would help RadioShack in winning customers’ confidence and in building rapport with them.