How Radio Shack Stays In Business

Have you ever strolled into a Radio Shack to buy a $0.99 plug adapter, spent 10 minutes looking for it, been the only customer in the store the whole time, and wondered as you checked out how this store could possibly stay in business? Well, the answer lies in residual payments for mobile phone service. Radio Shack makes a large portion of its revenues from recurring monthly commissions from Sprint PCS and Verizon Wireless for customers that they had signed up long ago. That’s a beautiful business model: keep getting paid by customers every month, but only sell them once. This is the same model used for years in the insurance industry. The carriers find it worthwhile to make recurring commission deals because channels like Radio Shack and Best Buy bring in so many subscribers. However, carriers are also trying to find ways of reducing the ongoing commissions they currently pay, and are trying to shift more of their business to direct sales, such as online or call centers. Some carriers are also reducing their commission structure, but those deals are confidential. Either way, Radio Shack doesn’t stay in business selling you $2.99 in batteries: true to their name, their selling high value radio services.

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