Radio Shack (Finally) in Chapter 11, Awaits Court Approval

Perhaps the least surprising bankruptcy filing this decade, Radio Shack filed for Chapter 11 protection late Thursday in the U.S. Bankruptcy Court in the District of Delaware. But, despite years of financial troubles and self-inflicted wounds, the brand name curiously may not disappear entirely.

Radio Shack filed for voluntary bankruptcy as it continued to struggle with mounting debt. Instead of liquidating inventory, the company is selling off 1,750 of its 4,000 to General Wireless. The plan is to turn most of these locations into Sprint-branded stores, which is interesting since Sprint recently turned around its struggling business model at least temporarily amid heavy marketing that skewered higher costs for cell phone service offered by rivals Verizon or AT&T. However, under a so-called “store within a store,” concept, the Radio Shack brand name may be used for a number of products/offerings. That seems to be a head-scratcher among analysts, given how far Radio Shack’s reputation has fallen in recent years. Either way, the move could mean many suppliers will be able to continue doing business with the company if a U.S. Bankruptcy Court judge approves.

Radio Shack was identified as increasingly troubled in an NACM Industries to Watch article in August 2013 about the precarious state of the retail industries, especially where electronics was concerned. Radio Shack was a proverbial poster boy for the trend, and even a punch line, for a variety of reasons: oversized stores, too many locations, inadequate response to e-commerce competition, failed rebranding that was viewed as desperate and other notoriously poor management decisions. Radio Shack tried reducing its number of stores and hours of operation of late to save money but has continually racked up losses. More recently, Moody’s Investors Service predicted that an October injection of cash by investors would almost certainly not help beyond 12 months because of  continued “anemic store traffic, margin erosion and chronic revenue declines.” The ratings agency noted that “unless management is successful in stabilizing the company's margins and reverse the precipitous revenue declines, we expect the company to find itself in the same precarious position.”

- Brian Shappell, CBA, CICP, NACM managing editor

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