RadioShack woes an opportunity for Amazon: Expert

Amazon eyes hurting RadioShack stores
Amazon eyes hurting RadioShack stores   

Will it or won't it?

The saga over whether online behemoth Amazon will finally go from clicks to bricks raised eyebrows again on Tuesday, when the company announced that it will open a pickup and drop-off location at Purdue University—just hours after a report surfaced that it's in talks to snatch up some RadioShack stores.

Though it's certainly not the first time speculation has risen about the company's potential to compete with traditional retailers in the physical realm, it's a move that spells opportunity for the online-only player.

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"We think it makes imminent sense for them to open up some retail presence on at least a trial basis and see how it goes," said Craig Johnson, president of Customer Growth Partners.

With headlines swirling that a RadioShack bankruptcy is looming, taking over some RadioShack locations would give Amazon the opportunity to launch its physical presence at a relatively low cost, Johnson said.

Whether it were to buy the deals out of bankruptcy under court supervision, or secure a deal before RadioShack goes belly up, "it's at least worth considering for them," he said.

RadioShack declined comment on the rumor; Amazon did not respond to a request for comment.

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"At the end of the day, Amazon's really a logistics company," Robert Peck, an analyst at SunTrust Robinson, told CNBC. "Having these physical presences could really help them with distribution."

Johnson warned, however, that Amazon would need to act prudently.

"They don't want to do a Target," he said, referring to the big box store's failed expansion into Canada, which many attribute to the fact that it opened too many stores too fast. "I would argue that it's probably better to do a smaller number and do them right."

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Johnson said the appropriate number for Amazon to start off with would be somewhere around 50 to 100 locations. That's a small percentage of RadioShack's store count, which as of its most recent earnings report included more than 4,000 company-operated stores in the United States and Mexico.

Speaking more long term, Peck said Amazon should open a few hundred stores and potentially up to 1,000. He expects them to focus on urban markets and said they could customize the offerings to the local geography.

"It would make a lot of sense, as they really push toward this same-delivery concept, to have it at least in the urban areas," Peck said.

Robin Lewis, CEO of The Robin Report, noted that although RadioShack's stores are small, they're everywhere—which could give Amazon an edge geographically.

"Their ubiquity could be an efficient way of realizing Amazon's brick and mortar initiative," he said.

In the past, some experts have warned that it could be risky for Amazon, which pulls in a high volume of sales at the expense of margins, to enter the physical space. They argue that it would add another layer of cost to a business model that makes it difficult to churn a profit.

But Johnson said that depending on how the retailer plans to operate its stores, it could be a relatively low-cost move. If it used the locations just to allow people to sign up for Prime and didn't stock merchandise, for example, that would be relatively inexpensive. Adding in inventory and other complexities, however, would raise the price tag.

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"It depends on how they configure it," he said.

Johnson added that the stores would be a big draw for mall developers, as they'd provide uniqueness to their centers, and could therefore provide a traffic boost.

Rumors swirled last year when Amazon signed a lease in midtown Manhattan, causing many to speculate it was opening a storefront. Since then, the company has said it will use the location for office space, and plans to sublease the ground floor space to other retailers.

A number of retailers, including Gap's Athleta, Warby Parker and Rent the Runway, started off as online-only operations and have since expanded into physical stores.