A. Lee Graham firstname.lastname@example.org
RadioShack is many things to many people. To some, it’s the stuff of circuit board dreams, catering to hobbyists needing spare parts. To others, it’s a PC and cellphone innovator that leaped ahead of the competition before there was a competition. Therein lies the rub. If the Fort Worth-based retail giant would have capitalized on the TRS-80 concept that helped pioneer personal computing or built upon its electronic components reputation, it might have remained at the forefront of electronics retail.
Instead, what was once a flagship of retail emanating from Fort Worth is in turmoil. After suffering a $119.4 million second-quarter loss – the latest in nine consecutive unprofitable quarters – the firm acknowledged bankruptcy as a possible next step. Then again, the company whose stock price once reached an all-time high of $78.50 in 1999 and this month plummeted into 70-cent territory could gain financing aid. It also could gain help from a “major vendor,” according to its Sept. 22, 2014 filing with the U.S. Securities and Exchange Commission. But some are skeptical. “Vendors just aren’t in the business of propping up their customers,” said David Tawil, president of hedge fund Maglan Capital LP of New York, which focuses on companies approaching bankruptcy. “Once the conversation becomes framed that way, a vendor is going to say, ‘Hey, the end user is going to get this product one way or the other [through other retailers]. If RadioShack ends up folding, how much do we really lose in the end?’ Probably not very much,” Tawil said. Borders also went the vendor route before the book chain shuttered in 2011. Meanwhile, RadioShack is considering a $585 million financing package from UBS AG and hedge fund Standard General LP. Coordinating $325 million of potential commitments would be UBS, with Standard General arranging $260 million in financing, overriding a $585 million loan and funding vehicle from GE Capital. Even as RadioShack continues talks aimed at averting bankruptcy, a Fort Worth finance professor says that might be the best recourse. That’s because bankruptcy restructuring would allow the company to pay off leases of its storefronts at a much cheaper rate.
“That’s a big vote in favor of bankruptcy,” said Steven Mann, an associate professor of finance at Texas Christian University’s Neeley School of Business. “I suspect there are negotiations going on right now. That’s probably part of the negotiations,” Mann said. Whether a company once known for personal computers, electronic spare parts – even a free battery-of-the-month club with nifty membership card – survives, or even thrives, is anyone’s guess. But few have much hope for a firm that turned few heads after it formed in 1921 to sell radio components and other gadgets by storefront and catalog. Things changed after Tandy Corp. snapped it up in 1963, raising the Fort Worth leather retailer’s stock and heralding the rise of a late-20th century retail phenomenon. Not only was “The Technology Store,” as RadioShack was once dubbed, marketing early versions of the cellphone and personal computer, but it also rode the crest of the citizens band radio in the 1970s. Yet a business that many observers thought could have enjoyed Best Buy or Dell success took the wrong path, Tawil and others contend. It sold products through Video Concepts, McDuff and other retailers instead of focusing on its own brand. “Unfortunately, because of the way the technology has developed and competition has developed, some of their missteps and failures to adapt to the current market are reasons why they are in the position they are in,” Tawil said. Among those missteps is focusing on cellphones and not the service contracts allowing their use, according to a Dallas marketing professor.
“I think their fundamental problem is their business is so tied to mobile devices, and the mobile devices their competitors have include carriers,” said Ed Fox, an associate professor of marketing at Southern Methodist University’s Cox School of Business in Dallas. Those carriers are willing to sell phones cheap to secure customer service contracts. “But RadioShack does not offer subscriptions, and there’s no money in hardware. Carriers are making all their money on wireless services,” Fox said. Many of the company’s 4,400-plus stores worldwide likely will close as the company tries digging itself from its financial hole. Reflecting the tense situation, John Feray resigned as the company’s chief financial officer in early September, less than a year after taking the job. Meanwhile, CEO Joe Magnacca continued attempts to upgrade the company’s retail stores and merchandise in going head-to-head with the Wal-Marts and Amazon.coms of the retail world. Adding customer service kiosks to existing stores modeled after Apple stores’ “genius bars” might give the company an edge in helping customers learn how to use the inventory it sells, suggested Fox, the SMU professor. “I think that’s a potential opportunity for them, but I don’t know if they have the time to explore that opportunity. They need to be able to finance those changes, and I don’t know if their current cash flow would support it,” Fox said. How soon RadioShack could file for bankruptcy – or announce a different recourse – has the retail industry watching closely. “It could be super-imminent,” Tawil said of a possible bankruptcy filing. “It is unfortunate because the company was once quite innovative and had a very important position in the marketplace.”