RadioShack files for Chapter 11 protection again


Financier Worldwide Magazine

May 2017 Issue

May 2017 Issue

For the second time in a little over two years, storied American electronics retail chain RadioShack Corp has filed for Chapter 11 bankruptcy protection amid an increasingly difficult retail landscape.

The company filed for bankruptcy in March, listing assets and liabilities in the $100m to $500m range at the US bankruptcy court in Delaware. The company, which was founded in 1921, was at one time among the largest retailers in the US, with around 5000 stores nationwide. By 2014, however, the company was losing $200m a year in the mobile space alone.

RadioShack’s parent company, General Wireless Operations, acquired the brand and its 2400 US stores in 2015 after the retailer filed for Chapter 11 protection for the first time. General Wireless was established as an affiliate of Standard General, a former shareholder and creditor of RadioShack.

Under General Wireless’ stewardship, RadioShack embarked upon a period of renewal. It diversified its business, selling RadioShack branded audio equipment, as well as integrating FedEx drop off and pick up locations into around 140 stores. A number of the company’s outlets were sold at auction, while 115 of the company’s remaining 1400 stores were rebranded under a partnership agreement with wireless mobile provider Sprint Corp. Though RadioShack reduced its operating expenses considerably in 2016 – a drop of around 23 percent – and gross profits increased by 8 percent, the company was unable to keep its head above water.

Going forward, the company hopes to find buyers for a number of its stores; however, RadioShack will close around 552 of its locations across the US. Those stores that remain open will be subject to review. Sprint will also convert the co-branded locations into Sprint corporate-owned stores, while stores that are unable to be sold will likely be closed.

RadioShack believes that the deal with Sprint has contributed to the company’s financial difficulties, given Sprint’s own dwindling sales. Sprint sales dropped during the fourth quarter of 2016 and “it became apparent” RadioShack would not receive expected revenue from mobile commissions, the company said in its Chapter 11 filing.

The two companies have agreed to wind down their partnership, according to a first-day declaration by RadioShack’s president and chief executive Dene Rogers. Sprint agreed to pay General Wireless a winding down payment of $12m in exchange for the co-branded store leases. The mobile provider will also gain the rights to the fixtures from an additional 245 stores where Sprint is the primary tenant.

“For nearly 100 years, RadioShack has proudly served local communities across the United States, offering consumers unique, high-quality products at a great value,” said Mr Rogers. “Over the course of the past two years, our talented, dedicated team has worked relentlessly in an effort to revitalize the Company and the RadioShack brand, while providing outstanding service to our customers. We greatly appreciate their hard work and dedication. Since emerging from bankruptcy two years ago as a privately owned company, our team has made progress in stabilising operations and achieving profitability in the retail business, while our partner Sprint managed the mobility business. However, for a number of reasons, most notably the surprisingly poor performance of mobility sales, especially over recent months, we have concluded that the Chapter 11 process represents the best path forward for the Company. We will continue to work with our advisors and stakeholders to preserve as many jobs as possible while maximising value for our creditors.”

RadioShack has been granted interim court approval to use lender cash to help fund its Chapter 11 bankruptcy case. However, the judge took a dim view on the company declaring ‘everything must go’ sales at stores not included on the list of locations to be liquidated.

© Financier Worldwide


Richard Summerfield

©2001-2019 Financier Worldwide Ltd. All rights reserved.