The computerization of Tandy

Information Processing

Computers

Business Week

April 16, 1979

Lewis F. Kornfeld Jr. has often heard that Tandy Corp. does not belong in the business of making and selling microcomputers. But the Tandy executive vice-president also knows that his Radio Shack Div., better known for its prowess in retailing consumer electronic gadgets and hobbyist products, has out produced and outsold its closest microcomputer competitors by 4 or 5 to 1. "We think we have more machines out there possibly than all the other producers put together," Kornfeld says. Analysts and competitors agree, estimating that the Fort Worth-based company has sold more than 90,000 home or personal computers in the last year and a half.

Even Kornfeld is surprised by the results. "When we started to develop a microcomputer back in 1975," he says, "I really thought the product would enhance our image as a technologically capable organization, whether it sold or not."

But the product took off, boosted by Tandy's strategy of coming in with a low price, advertising heavily, and pushing volume. The company is cranked up to turn out about 100,000 units annually and currently is selling microcomputers as fast as it can produce them. On an average sale of $1,200 -- which includes such peripheral devices as printers and additional memory -- Tandy is expected to generate more than $120 million in microcomputer sales this year.

Retailing muscle

If Tandy is a bit surprised by its early success with the TRS-80, it is astonished that the outcome has not drawn heavyweight rivals any faster. Says John V. Roach, executive vice-president of Radio Shack: "I never would have thought we would have gone this long without a significant competitor and without some significant price erosion."

A year ago, Tandy might have been vulnerable to an all-out attack from a serious competitor with a low-priced microcomputer. Now it seems much stronger. With production soaring, Tandy is reaching economies of scale that no one else, so far, can touch. But the real strength of the company -- and one that will be difficult for any competitor to duplicate -- is its retailing muscle. Its worldwide Radio Shack chain has more than 7,000 consumer electronics stores and dealers, including 4,100 that are company-owned stores.

What is more, Tandy has opened 30 Radio Shack Computer Centers and will open an additional 20 by the end of May. The centers carry a full line of computer gear and will backstop local Radio Shack stores on service. Store managers have also learned a great deal more about computers in the past year. Some 95% of them now have at least 20 hours of training in computer programming; a year ago only 5% of store managers had received this training.

A big lift

Microcomputer sales have given Tandy a big lift at a critical time. Five months ago the company was stunned by the death of Charles D. Tandy, 60, its charismatic chairman, president, and chief executive officer. Tandy was regarded as a truly outstanding marketer. He picked up Radio Shack in 1963 when it was a floundering chain of nine New England stores with a negative net worth and turned it into one of the brightest stars in the specialty retailing field.

But Tandy, impressive as he was, basically ran a one-man show. Phil R. North, a close associate who took over as chairman and CEO, lacks Tandy's drive and imagination and is seen as something of a figurehead. Some observers, however, minimize any impact that the management change will have on Tandy operations. "Charles Tandy hadn't really been running things on day-to-day basis for three years," comments one analyst who watches the company. "The same people are running the key parts of the company." And he concludes: "The company may lose some of its promotional fervor, but otherwise it is in extremely good shape." Thanks in large part to its microcomputer, Tandy's sales for the six months ended Dec. 31 rose 16% to $658 million, while net earnings jumped 25% to $50.4 million.

One traditional Tandy strategy that is paying off with the microcomputer is its heavy spending for advertising and promotion. It plows about 8¢ out of every sales dollar into such efforts. It advertises the TRS-80 widely in newspapers, magazines, and on television and radio. In addition, it has staged media events in the top hotels of 102 cities around the country, where guests were given a "hands-on" demonstration of how to program the microcomputer.

"Radio Shack has done a tremendous job of raising public awareness of the computer," acknowledges Michael J. Connor, dealer sales manager at Apple Computer Inc., its leading microcomputer competitor. "They are creating a tremendous base of customers for me and the rest of the industry," he adds.

Although Tandy has integrated backward so that it now produces about 40% of the products sold through its Radio Shack chain, it has never pretended to be a leading-edge manufacturer. In fact, it does not even have a formal budget for research and development. North says that Tandy is a retailing organization first and last. "But whenever we can make a savings of 20% by manufacturing an item rather than buying it from someone else, then we will go ahead and make it," he says. "There is nothing we sell that we can't make," he claims. And competitors admit that Tandy is reputed to be a skilled assembler.

It was that strategy that led Tandy into manufacturing its own microcomputer. In 1975, when the only microcomputers on the market were hobby kits, Tandy decided to market a fully developed, low-cost model. When it could not find any manufacturer to build it at a low enough price, the company decided to build the machine itself.

A divided market

Tandy now has more than 7000 people working in microcomputer assembly, but it is still buying a major portion of the TRS-80 system. Tandy buys its microprocessor and most of its peripherals, including printers and disk drives, from outside sources, although it plans to manufacture those peripherals, too.

Soon after the basic TRS-80 was introduced in the summer of 1977, the $600 unit -- which includes a TV monitor, cassette recorder, and 4,096 characters (4K) of memory -- drew a number of catcalls from computer magazines and purists, who dubbed it the "Trash 80." They complained about how difficult it was to load software programs into the system and how misleading the advertising claims were that promoted the unit as a business computer. Tandy officials concede that early ads -- particularly one on television suggesting that the tape cassette memories could replace a roomful of files -- were overblown.

Many observers question just how useful the current generation of Radio Shack's personal computer will be to business. In fact, Stephan H. Seidman, who recently completed a lengthy report on the subject for Strategic Business Services, a San Jose (Calif.) market research firm, believes that the microcomputer market will divide into separate business-oriented and consumer-oriented segments. When Tandy "gets through the layer of businessmen who are mostly just curious," he says, "it will come to the hard-nosed businessman who will say, 'You put it in and make it work, and I'll think of paying you.'"

Nevertheless, Tandy is now selling about 50% of its personal computers to businessmen. Pennwalt Corp., for instance, is urging its hundreds of swimming pool dealers around the country to invest in a TRS-80. While a lack of readily available software and insufficient memory capacity have prevented the TRS-80, so far, from serving as a good data processor for ledgers, accounts receivable, accounts payable, and inventories, it is being used by many businessmen to control at least one of those functions.

Another rapidly developing market is in education. "We see the schools as a major, major, market," exclaims Radio Shack's Roach. Tandy is already off to a good start with the Dallas school district, which has purchased 60 systems and developed several programs now being offered to school districts around the nation.

The age of the home computer may not be here yet, but the era of the microcomputer as a plaything for hobbyists has clearly passed. Tandy's niche may be in its ability to mass-merchandise the latest, and still barely understood, offerings of the electronics age. Radio Shack, for example, is also enjoying strong sales these days from new telephone gadgets, says Terence J. McEvoy, an analyst at Oppenheimer & Co. "Who else but the Radio Shack salesmen," he asks, "with a natural inclination toward these sorts of things, are going to be able to sell them?"

GRAPHIC: Picture, A Dallas schoolchild uses one of serveral Tandy computers installed in her classroom. Gary Bishop