RadioShack's Bankruptcy Is Now A Reality

RadioShack's Bankruptcy Is Now A Reality

As we discussed in an earlier blog post, well known electronics retail chain RadioShack’s bankruptcy filing is coming to fruition.

After reporting losses in each of the last 11 quarters and coming dangerously close to running out of cash, RadioShack was hoping to file for protection under Chapter 11 of the bankruptcy law as early as Feb. 2, according to The Wall Street Journal. However, the retailer and its advisors were still hammering out the details of an agreement with hedge fund Standard General LP, which is attempting to serve as the lead bidder at RadioShack’s bankruptcy auction. Standard General became the company’s largest shareholder last year and led a round of financing that helped it through the holidays.

The struggling company also hasn’t yet finalized the terms of a loan that would go toward funding its operations through the restructuring process, the news source reported. Salus Capital Partners, a financial organization that has provided financing for RadioShack before, has offered to provide a loan of $500 million for this purpose. However, the two parties must first discuss how many of the retailer’s stores will be closed and what protections will be in place for the so-called “debtor-in-possession” loan.

Salus and RadioShack have butted heads in the past, according to the Journal. The former recently prevented the latter from increasing its efforts to close stores, citing a condition in a previous loan to the company that limits it to 200 closings per year. RadioShack announced plans to close up to 1,100 stores, which Salus did not consent to.

Workers at a number of RadioShack stores told the news source that the company has ordered them to ship big-ticket items to nearby stores and cut prices on remaining inventory. There are 4,300 RadioShack stores in North America, but the company has said that it needs to close many of them.

Potential buyers

Rumors have been swirling regarding potential buyers of a large number of RadioShack leases. Sprint and Amazon are thought to be the major contenders, according to Forbes.

Sprint is allegedly considering the prospect of buying a lot of RadioShack stores to extend its own retail reach, according to the news source. It has also been reported that it is considering a move to open co-branded stores, which might sell both Sprint and RadioShack merchandise. While this is an interesting possibility, Paula Rosenblum at Forbes noted that Sprint appears to have about as many locations as its competitors in at least some major markets. She questioned, rightly in my opinion, whether Sprint shareholders would be interested in picking up the expense represented by these many additional stores with what may be diminishing returns.

The rumor that Amazon may purchase some of these stores is fascinating. So far, the online retail giant has eschewed any serious commitment to consumer-facing retail space, but Rosenblum notes that many tech companies are showing an interest in so-called “cross channel” capabilities. Could Amazon be moving into new markets?

As RadioShack attempts to reorganize into a smaller, sleeker form, it is worth considering the way that this retailer got left behind in the modern age. As consumers move online for small electronics purchases, to big box stores for TVs, to carriers for smartphones and to manufacturers for computers, a one-time retail giant is left without much of a market.