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Under bankruptcy plan roughly half of RadioShack will survive, under new ownership -- the deal also brings Sprint to the table

Radioshack Corp. (RSHC) last Thursday announced [press release] that after 11 consecutive quarters of net losses it was finally throwing in the towel and filing for Chapter 11 bankruptcy protections.  Will an awful decade destroy this iconic American brand that's survived so many technology transitions -- over nine decades thus far?  Or will it yet again rise from the ashes under new ownership?

I. Saved by Tandy, RadioShack Become Center of Electronics Revolution

To understand why there's still hope for the future, one need only to look to the past and how many times RadioShack defied the odds and rebounded from financial mires.

Founded in 1921 in Boston, Mass. Radioshack is among the nation's oldest retail chains, let alone electronics shops.  Its early history, all the way up and through the 1990s is documented in many locations, but one of the better accounts is found on FundingUniverse.

In the 20s, 30s, and 40s, RadioShack weather the depression and operated as a small but successful ham radio business.  By the 1950s its retail footprint had grown to encompass nine stores and a thriving mail order business.  Then came the 1960s and Radioshack's first flirtation with bankruptcy, amid a downturn.
RadioShack bought by Tandy
RadioShack was saved by a purchase from Tandy in 1962. [Image Source: WrightwoodCalif.com]

Purchased for $300K USD in 1962 ($2.3M in 2014 USD) by tycoon Charles D. Tandy.  Tandy transformed RadioShack in just two years from a debt-riddled, failing business into a profit-driving machine that was opening stores at a frenzied pace of two stores every work day.

One key to this transformation was bringing inventory in house and simplifying offerings.  RadioShack began to sell its own branded electronics parts and assembled gear and reduced its inventory from around a dizzying 20,000 items to just 2,500 best-selling items.  Soon RadioShack was making above 50 percent profit margins on all the gear it sold.

As part of Tandy Corp., it flourished in the 70s and 80s, becoming a top spot for hobbyists.  Tand merged the retail parts of another acquired business -- Allied Radio -- into RadioShack in the 1970s.

Radioshack 1960s



Radioshack was intimately tied to the electronics revolution.  In 1977 it released on the of the first mass market personal computers, the TRS-80 ($600 USD at the time; or around $2,300 in 2014 dollars).  In 1984 it follow up with one of the first portable PCs -- a calculator style unit called the TRS-80 Model 100.  Sold at $1,099 USD (~$2,500 in today's money) for the entry level 8K model, the machine was surplanted in 1984 by the Tandy 200.

TRS-80 Model 100

The Tandy 200 was important in its own right.  While not the first "laptop" in the modern clamshell-style screen configuration (that honor goes to the Gavilan SC and a handful of similar systems), it was one of the best-selling portable computers of the late 1980s, defining the then-nascent idea of what we today know as a "laptop" in the minds of the American public.

TRS80-Model 200


TRS80 Model 200

In 1984 Radioshack was among the first retailers to offer up a mobile phone (then called a "car phone") -- the Motorola Dynatac 8000X.  The device retailed for around $4,000 USD (around $9,100 in today's dollars).  Later models were somewhat cheaper (thankfully) and were the subject of humorous 80s commercials:







Radioshack entered the satellite television business in 1985 with satellite dishes and service from RCA Corp., the first satellite internet provider.  This business saw some hiccups in the late 1980s due to RCA's sale to General Electric Comp. (GE) and the breakup of its business.  But RCA's satellite offerings continued to provide RadioShack a source of income for years to come.

II. A Nineties Slide and the Comeback

At the close of the 1980s RadioShack consisted of about 7,000 stores spread across the U.S.  After decades of growth riding the mobile wave and the hobbyist electronics movement, Radioshack found itself financially struggling once more in the late 1990s.  Listless and lacking a clear growth plan amidst a soft consumer electronics market, RadioShack's parent Tandy sold its computer, computer parts, and cell phone manufacturing business in a series of deals worth close to $700M USD ($1.15B USD).

Tandy Electronics

No longer directly a manufacturer (a founding principle of Charles Tandy), RadioShack needed help fast and it got it in 1993 in the form of new President Leonard Roberts.  Key to Roberts turnaround of the verteran brand was his emphasis on returning to one of Tandy's key principles -- paring down inventory.

Under his leadership the slightly downsized chain of 6,500 stores returned to growth.  Under his lead, in 1994-1995 to commemorate the revitalization, the chain rebranded itself with a new logo and slogan: "You've got questions. We've got answers."

RadioShack -- Leonard Roberts

Leonard Roberts (pictured, inset) revitalized RadioShack in the 1990s as its President.

The changes weren't without some loss from a nostalgia standpoint.  The store scrapped the "Battery Card", a business card which granted member to the "Battery Club" a promotional lure which offered customers one free battery per month.

Radioshack battery card

Radioshack old-school battery ad



That led Roberts to be promoted to CEO of Tandy the end of 1998.  Roberts made the seemingly wise decision of focusing on the succesful RadioShack brand.  The in-house rival brand Computer City was sold to CompUSA in a deal worth $211M USD ($306.5M USD in 2014 dollars).  After the deal the Tandy branding began to fade.  At a meeting Roberts famously proclaimed:

Tandy is RadioShack, RadioShack is Tandy.

In Oct. 1999 RadioShack launched an online sales portal, backed by a $100M USD investment (~$140M USD in 2014 dollars) from Microsoft Corp. (MSFT).  Microsoft President Steve Ballmer stated of the deal:
 
This is a big deal for us.  The chance to have the kind of partnership where a customer can go in, experience the Internet, sign up and get the Internet easily installed in whatever form makes sense.

The deal created mini "Microsoft Stores" within Radioshack that sell Windows devices and promote Microsoft's internet services.  Today these stores live on but, albeit decoupling from RadioShack and making the move into their own dedicated spaces starting in 2009.
 
Radioshack 2000

Microsoft helped RadioShack develop an e-commerce portal which opened in mid-2000.

At the end of the century and the end of its seventh decade in business, RadioShack looked well positioned at the heart of the cell phone business and the linger hobbyist electronics market.

And it was financially sound; under Roberts Tandy reported its strongest earnings in years --$297.9M USD of profit on sales of $4.13B USD in 1999 (around $400M USD in profit on sales of $5.9B USD in 2014 dollars).  This drove shares in 1999 up to nearly $90 USD/share.  RadioShack's market capitalization was roughly $8.9B USD ($12.7B USD in 2014 dollars).

Thus it walked into a new century with high hopes and roughly 7,000 stores.

III. Roberts Leaves on a High Note

In 2000 Tandy officially changed its name to RadioShack Corp.  The rebranding, refocusing -- and internal takeover of sorts -- was complete.

By 2000 Radioshack's revenue crossed the billion dollar threshold quarterly for the first time.  But the so-caled "burst of the Dot-com bubble" triggered a general market malaise that slowed cell phone sales and other electronics.  But Radioshack's profit slipped in 2001.

Leonard Roberts
Leonard Roberts (pictured) kept his finger closely on the pulse of RadioShack's profit and growth, shaking things up when necessary.  He also avoided the kind of leadership crises that would afflict his successors. [Image Source: Fort-Worth Star Telegram]

Again Roberts took action.  In 2002 he ended the long-standing policy of asking customers for their home address and other info in 2002 -- an intrusive tactic Radio Shack had long successfully used for mail marketing, but which had begun to backfire.  Roberts also worked to yet again tune up the retailer's supply chain.

He commented in a 2003 interview:

Over the past few years, we have focused on the fundamentals of our business by strengthening our supply chain, divesting ourselves of non-core businesses, and becoming a more disciplined organization.  We are now well-positioned to implement a longer-term growth plan that we believe will bring increases to both our top and bottom lines.

In Oct. 2004 he also signed a major deal with Wal-Mart Stores, Inc.'s (WMT) warehouse chain Sam's Club.  The deal put RadioShack cell phone kiosks in 542 Sam's Club retailers nationwide.  With everything looking good Leonard Roberts -- then age 55 --in 2005 announced surprising news: he was retiring.  He went out on a high note, but his chosen successor would ultimately start the downward slide of RadioShack that culminated this week.

Radioshack
Since Roberts left in 2005, it's been a downward trend for stock.  [Image Source: WSJ/AP]

His replacement would be his top lieutenant, company President David Edmondson.  Edmondson had seemingly proven his mettle in executing Roberts' prescribed store layout overhaul over the past several years.

At the time (in May 2005) he commented:

I knew from the first time I met Dave that he could someday become CEO of RadioShack.  This is an excellent time to transition the CEO job and day-to-day management of the company to Dave.  I've never wanted to be an entrenched CEO.

And with those great expectations the era of Roberts came to a close.

IV. Edmondson Fails Hard, Casts Cloud of Embarassment on Veteran Brand

Internally there were trouble signs early on, as Edmondson once in control began to role out punitive and controversial internal programs.  Notably, he felt that some store managers weren't pulling there weight, so he instituted a program called "Fix 1500" to track the performance of roughly 5,000 of the company's managers.  The lowest performing 1,500 would receiving warnings and have to raise their scores.  Those who didn't would be terminated or demoted to hourly sales associates.

The program succeeded in one metric at least -- firing or demoting a lot of managers.  In six months it had cleared house of over 1,700 managers.  Imagine the ill will created by letting 1 out of every 3 of your managers go -- it was sort of the corporate equivalent of the possibly apocryphal quote, "The beatings will continue until morale improves."

RadioShack
Under a controversial internal policy RadioShack fired or demoted nearly a third of its managers in 2005.  Those that remained were still largely resentful of CEO Edmondson, who okay the plan.

And although the firings continued, morale was not improving.  After thriving for so long in the Tandy and Roberts era where a "carrot approach" of incentivizing performance was emphasized, Edmondson was frustrated to discover that terrorizing the management ranks wasn't a good approach to improving productivity.

And soon those birds would come home to roost.

In Jan. 2005 Edmonson was arrested on suspicion of drunk driving -- his third arrest for suspected DUI.  Earnings for 2005 missed targets.

As that case crept towards a court date a year later, another ugly scandal was brewing.  Tandy Corp.'s hometown -- Fort Worth, Tex. -- rocked investors when the local newspaper, The Fort Worth Star-Telegram, published an expose revealing that Edmonson had lied on his resume.

David Radio Shack

More than a decade later, Edmondson's little resume lie cast fuel on the fire of his critics and embarassed the RadioShack's management by making its CEO look like a liar.

In his resume he had claimed to have a four-year Bachelor's of Science degree in psychology from the Pacific Coast Baptist Bible College in San Diego, Calif., a small, private Bible college with no formal accreditation.  In reality he never finished that degree.  The errors appeared on the application which led to Edmondson's hire in 1994.  Four years later the college he had attended moved to Oklahoma City, Okla. and renamed itself the Heartland Baptist Bible College.

Edmondson went on the defensive claiming that while he didn't actually have the four year degree he claimed, that he did have a three year theological degree (ThG).  In an even more far-fetched turn, he claimed to investors that he couldn't produce the ThG as it burned up in a fire in his garage.

The story wasn't adding up.  Confused officials from his former school -- now in Oklahoma City college told reporters that they had record of his enrollment, but no record of him graduating with any degree.

Pacific Coast Baptist College
The PCBBC said it had no record of Edmondson completing a 3-year ThG degree or a 4-year BSe.  It appeared that after a brief enrollment he took an indefinite hiatus and never finished.

Within weeks Edmondson was forced to give the semi-retired Chairman Roberts his resignation.  He was awarded a $1M USD severance package to "avoid competitive concerns".  

Ironically, his replacement -- interim CEO Claire Babrowski -- also had no college degree.  

Claire Babrowski
While she had no college diploma, RadioShack's CFO-turned-interim CEO, Claire Babrowski didn't lie on her resume. [Image Source: AP]

Fortunately for her she had told the truth on her resume and had risen up the ranks without having to fib her way to the top.  In July 2006 Radioshack named a permanent replacement, CEO Julian Day.

V. Every Dog Has Its Day: RadioShack Survives Recession But is Weakened by Cost-Cutting

Day's reign was the closest to stability Radioshack has enjoyed to date since Roberts' departure.  But it was not without problems of its own.

When it came to Radioshack's struggles, Day embraced one component of the plan Edmonson had been formulating around the time of his unexpected departure -- store closures.  Within a year Radio Shack had closed 500 of its roughly 7,000 stores, had laid off 1,100 employees, and had sold its Fort Worth, Texas headquarters to a German investment company and leased it back to save money.

The HQ had been something of a point of pride in the tail-end of the Roberts era.  Roberts had orchestrated the purchase of the Ripley Arnold public housing complex in Fort Worth, along with surrounding land.  Demolishing that aging housing construct, he poured $200M USD into transforming the resulting 31-acre site into an eye-catching symbol of RadioShack's proud history.
Radioshack
RadioShack's gleaming campus is a testament to its glory days, which wrapped up under Roberts a decade ago. [Image Source: Fort Worth Telegram-Star]

The finished headquarters had four massive tower buildings overlooking the Trinity River.  By 2006, over 2,300 corporate employees were working at the site.  But Day would sell Roberts legacy.  RadioShack was now a tenet, perhaps a telling shift.

Elsewhere RadioShack staff felt the pinch of Day in the pocketbook.  He cut payroll more than a $200M USD from $826M USD in 2005 to $618M USD in 2008.  In addition to the layoffs and pay cuts he also cut back on vacation benefits, trimming another $14M USD in expenses.  Not done, he also slashed advertising by $54M USD.

RadioShack store
RadioShack survived the recession, even as less fiscally disciplined peers fell. [Image Source: Reuters]

There were embarassing moments -- like when Day's camp fired hundreds of employees via email in a round of layoffs -- but overall the calculating strategy seemingly worked.  Revenue dropped, but profits and cash reserves soared as the new stripped down RadioShack tried to adjust to its restricted spending diet.  Day bragged:

I just want you to know that a review of costs around here has now become a way of life.  It is a core focus of ours.

At first the cuts made him look like a genius as they came just before the "Great Recession" of 2007-2008.  Sitting on plenty of cash, RadioShack survived as CompUSA and Circuit City -- two top electronics retailers -- crumbled into bankruptcy and liquidation.

But the frail, weak survivalist that Day had transformed RadioShack into was exposed in the daylight in the post-recession recovery. Even as other retailers like Best Buy Comp., Inc. (BBY) enjoyed soaring cashflow, RadioShack's numbers were stagnant and gloomy.

Julian Day
Equal parts mercurial and fiscally disciplined, Julian Day helped RadioShack survive, but perhaps doomed it to a slow death in the process. [Image Source: Forbes]

That led to speculation that perhaps what Day had really been playing at all along was revamping RadioShack in hopes of selling it to someone.  Perhaps that might explain his reclusive behavior?  Maybe that's why he was so slow filling critical roles after employee departures?

Whether there was some grand design or he simply didn't care, in the end there was too little to defend Day against angry investors.  After RadioShack actually saw a drop in same-store sales in Q1 2011 Day was soon out, forced into an early retirement.  As the D CEO magazine summarized:

Unconcerned about falling sales and unfazed by bridges burned along the way, his turnaround of the company appeared to be a smashing success, judging by cash flow and Wall Street.

In Day’s first year, RadioShack’s stock price almost tripled, and he topped every individual performance hurdle. At one point, his four million stock options had a paper value of nearly $85 million. But in May, when the 58-year-old Brit stepped down as chairman and CEO after almost five years, his star had faded—and so had the payoff.

It’s one thing to slash and burn to pump up the cash flow. It’s much tougher to create a sustainable growth story, and Day never delivered on the more important score.

In perhaps the greatest irony, his cuts and their long-term impact devalued his own substantial stock options, which were worth $85M USD at one point.  Now they were hovering just above $50M USD (still not shabby).

VI. The Walking Dead

In mid-2011 the reeling RadioShack -- now searching for its fourth CEO in just six years -- enter the final phase of its path to bankruptcy.  This death creep was punctuated by the usual intermittent bad news, but the roar had dimmed to a dull buzz.  There was seemingly an expectation of failure at this point.

Radioshack's management and branding slid to obscenely poor levels compared to the company's heyday, but was it really so bad?  After all, the new leadership's predecessors had humiliated and pillaged a wildly successful company.  They were just seeing what they could scavenge from the mess.

Jim Gooch Radioshack
The reign of alway-grinning Jim Gooch as RadioShack CEO was short and not-so-sweet. 

There was James "Jim" Gooch who closed out 2011.  After seeing the company lose 80 percent of its share value in his first year under his indecisive nebulous leadership strategy.  What little scheming he did have in him largely result in failure, including the flop of a plan to replace the winding down contract with Sam's Club with a new partner -- Target Corp. (TGT).  But unlike the somewhat succesful Sam's Club deal, this deal was a dud, as was its architect Gooch.  The grinning Gooch was ushered out the door in 2012.

As it did in the wake of the Edmondson scandal, RadioShack tapped its CFO, Dorvin D. Lively, to serve as interim CEO.  Replacing Lively in 2012 was Joseph C. "Joe" Magnacca, fresh blood from Walgreens (Walgreens Boots Alliance Inc. (WBA)).  While he was a high-ranking executive at Walgreens, this was a move up for the 50-year old Canadian executive who had never been at the helm of a publicly traded company.

Of the ragtag recent leadership, Magnacca was perhaps the most loveable of the bunch.  Say what you will about RadioShack's seventh CEO in nine years, but he at least seemed to have the proper amount of enthusiasm.  His store concepts were honestly pretty interesting and ambitious.  He even made seemingly smart moves like embracing hot/rising brands like Beats and new technologies like 3D printers.

RadioShack's Joe Magnacca
RadioShack's Joe Magnacca tried to make up for a lack of experience with an excess of enthusiasm.
[Image Source: Make/YouTube]

Perhaps had Magnacca time-travelled to succeed Roberts, some new bold superstart RadioShack would have been born and still be flourishing today.  But in our reality the CEO had little to work with.  In 2013 he took an optimistic view, commenting:

I was brought in to help transform this business and the team that I'm putting in place is focused on rebuilding RadioShack.  We're in a great space relative to technology. It's a brand that really in the past has kind of lost its way.  Our job is to really reinvigorate the brand ... to rebuild confidence in RadioShack and bring back those lost generations of folks that we have lost over the last few years.

But his choice of wording was all too telling.  It hinted that RadioShack was a critical patient.  And good doctor or not, you can't save every dying patient.

VII. "Neither a Borrower Nor a Lender Be"

The final insult to injury came in 2014.  Facing mounting losses the new CEO at "The Shack" secured a series of loans that gave Radioshack the money to potentially complete a revamp of the stores coupled with more aggressive advertising.  Magnacca hoped the plan could bring RadioShack back from the brink, making it profitable again by 2015.

RadioShack
The new store look (see here) was cornered on restructured stores with brighter lighting and more modern looking design elements (similar to Target, for example). [Image Source: Getty Images]

In reality, perhaps Magnacca bit off more than he could chew cost-wise with the ambitious makeover plan, but it's also abundantly clear that RadioShack's shops were sorely overdue for a major makeover.

The debt for the plan came mostly in the form a $585M USD loan from GE Capital (a General Electric) subsidiary and the remains of a $250M USD loan creditor Salus (Salus Capital Partners, LLC, a subsidiary of the Harbinger Group Inc. (HRG)).

Time was precious.  Even as Magnacca unveiled on Manhattan’s Upper West Side a gleaming vision of what the next-generation RadioShack would look like, sales had fallen 8 percent on a year-on-year (YoY) basis (from 2012).

The big problem for RadioShack quickly became the terms of its loan from Salus.  Lenders typically use "loan convenants" to try to protect themselves.  Salus was well versed in the need for self-preservation.  Three of its prior lendees -- Dots LLC, Love Culture Inc., and Delia’s Inc. -- had all liquidated after their turnaround bids failed and they went bankrupt.

To try to avoid its losses should liquidation occur, Salus gave RadioShack a contract that was relatively free of convenants versus rival offers, but packed one important provision -- Salus would have the veto on any plans to sell over 200 stores in a single year, as sales would bolster RadioShack's cash temporarily, but might reduce the value of remaining assets by the time it liquidated.  RadioShack at this point had roughly 4,000 stores left after a half decade of downsizing, so this many any plan to close more than 5 percent of stores would have to be approved by Salus.

Salus

Salus would argue that the veto authority was necessary to protect its track record of never having one of its loans fail to pay  principal, interest or fees.  Not only was the RadioShack loan high risk, it was also the largest in Salus's history.

Despite its attractive terms Salus was somewhat hostile from the start, nearly backing out of its offer at the last minute after catching wind of negative operating results, according to a report in The Wall Street Journal (WSJ).  Instead it settled for sharing the risk by selling $100M USD of the loan to Cerberus Capital Management LP (who notably owned automaker Chrysler for a time).

VIII. The End -- or Perhaps a New Beginning

Magnacca despite the dangerous term, signed off on the loan as he figured that the 2013 holiday results would be modest, and RadioShack could survive by closing 100 stores or so -- below the veto threshold.  But at a critical moment, the chain's holiday performance slipped up, posting a loss of $63M USD on a revenue of $1.3B USD.

The loss was nearly twice what analysts expected.  Magnacca blamed the problem on a mixture of internal failures and external factors in a quarterly earnings call, remarking:
This holiday season was characterized by lower store traffic, fewer shopping days between Thanksgiving and Christmas, bad weather, significant industry promotional activity, particularly in consumer electronics and a very soft mobility marketplace.

Magnacca seemed well aware of the dire state of affairs, reflected in the humorous Super Bowl 2014 commercial "The 80's Called They Want Their Store Back".



The bit of levity was quickly overshadowed by a tense standoff between RadioShack and its lender.  Noting his chain's money losses and its scant cash pile, Magnacca reasoned that a slow turnaround was no longer an option.  He decided that the only viable path would be to sell approximately 1 in 4 stores -- 1,100 in total -- in order to more rapidly overhaul the remaining stores.

In a bold move he decided to publicly announce the planned store closures without telling the debtors in advance.  The move appeared to be made in hopes of forcing Salus and Cerebus's hands. The lenders weren't impressed and vetoed the plan.  Comments one source to The WSJ:

That was a tactical error that I can’t even explain.

The angry lenders demanded that RadioShack repay a fifth of its loan immediately -- $50M USD -- if it wanted to go through with the plan.  RadioShack balked and abandoned the strategy.

Joe Magnacca
RadioShack CEO Joe Magnacca's game of chicken with debtors ended in his defeat.  The blockage of his plan to close stores ultimately derailed his makeover plan. [Image Source: Fort Worth Star-Telegram]

Unable to close the stores, Radioshack was stuck trying to execute Magnacca's plan on a shoestring.  It made a series of moves, including repainting dilapidated stores, updating its signage, debut new products like toy helicopters, move less profitable products (namely, smartphones) to the walls (saving the floor for high-earning items), and launching a campaign to advertise The Shack as a cell phone screen repair site.

RadioShack Fix It Booth
RadioShack's deployed Fix It booths in 2014 -- one of a series of stopgap measures to try to turn things around after it was unable to close a significant number of stores.

All of these efforts saw some minor success at first, but ultimately culminated in massive failure in the 2014 holiday season.  Q4 numbers have yet to be published, but are expected to be grim; Q3 results saw a rise in losses -- a loss of $161.1M USD on a revenue $650.2M USD, worse than the loss of $135.9M USD on a revenue of $775.4M USD in Q3 2013.

Debt by Q3 2014 had soared to $841.4M USD, eclipsing quarterly revenue for the first time -- an ominous sign.    Worst of all, as few as 100 of RadioShack's stores -- or roughly 1 in 40 -- had completed the makeover to Magnacca's planned bright, attractive look.

In Oct. 2014 Magnacca, in a last gasp effort, secured $120M USD from creditors, push roughly $15,000 per store to ensure holiday inventory needs were met.  The deal was made with hedge fund Standard General LP and Litespeed Management LLC, the company's too largest institutional investors, hedge funds that held around 9.8 and 9.0 percent of shares, respectively.  The plan alienated many shareholders as the plan was in January to convert the emergency credit to new shares, diluting existing shares by up to 50 percent.

RadioShack
Holiday season 2014 brought only more of the same -- empty RadioShack stores.
[Image Source: Toronto Star]

Had RadioShack had a strong holiday season, it might have bought itself a bit more time.  Instead, its stuttering overhaul yielded yet another quarter of poor sales and declines, as stores in many regions sat empty during the height of the holiday season.  By January the talk was not of share conversion, but of the final preparations for bankruptcy.  That bankruptcy was announced this week.

IX. Standard General -- the Next Tandy Corp.?

It's tempting to say that lenders dragged RadioShack down, looking only at the last two years.  Reality is that over the last decaded RadioShack dragged itself down.

RadioShack debt
[Image Source: Bidness]

The more important question is what's next.

First up comes the liquidation, per RadioShack's just filed Chapter 11 bankruptcy.  RadioShack takes inventory of its current holdings, writing in a press release:

RadioShack currently has approximately 4,000 company owned stores in the U.S. Its more than 1,000 dealer franchise stores in 25 countries, the stores operated by its Mexican subsidiary, and its Asia operations are not included in the Chapter 11 filing or the agreements announced today.

The good news is that the liquidation plan actually isn't that far off Magnacca's vision.  Standard General LP -- the largest shareholder -- will dive in deeper (as Tandy did so long ago), buying between 1,500 and 2,400 stores (37.5 to 60 percent of total stores).  Standard General will manage the chain under its subsidiary/affiliate General Wireless Inc..

RadioShack stores
Only a little over half the RadioShack stores are expected to survive the bankruptcy (stores to shown are dotted). [Image Source: WSJ]

Sprint Corp. (S) is backing this deal, in exchange for this new look chain establishing a "store within a store" to exclusive plug its offerings.  The Sprint deal covers up to 1,750 stores (44 percent), perhaps hinting at the most likely number to be acquired by Standard General.  Considering that revenue from wireless carriers was already so far on the decline that Magnacca was pushing their product to store walls, this is a clear win for the soon-to-be-new chain.

RadioShack has identified a total of 1,784 stores that it lists as "potential... closures." [PDF] These locations were presumably selected based on density and (lack of) profitability.  A key word is "potential" -- this list is not set in stone and may change.

In terms of pressing questions, brand isn't one of them.  RadioShack's surviving stores in the U.S. will likely see big changes in terms of marketing and layout, but it's clear General Wireless wouldn't pay so much if it didn't see value in the brand, as Tandy did way back in the 1960s where he carried out a similar bailout of a failing 'Shack.

Radio Shack
You'll be seeing a lot of this. [Image Source: Death and Taxes]

In terms of problems the biggest questions relate to management and store direction.  The press release indicated Magnacca was the new CEO -- but will General Wireless stick with him once the transition is complete?  Will General Wireless finish his plan to execute his store makeover, with the new $285M USD line of credit (debtor-in-possession financing (DIP)) RadioShack/General Wireless secured from DW Partners, LP as part of the bankruptcy plan?

Those questions will be answered in coming months.

And then there's the biggest question of them all -- will debtors (including the oft ornery Salus) -- consent to Standard General's plan and try to recoup their losses via liquidation of roughly half of RadioShack's current inventory and stores?  Will the judge approve of the settlement?

Radio Shack is breaking up
[Image Source: Harry Campbell]

There's no sure answer to those extremely crucial questions.

In its lesser array of problems, RadioShack is already overdue on its corporate rent.  Ex-CEO Day's decision to lease the gleaming Fort Worth headquarters complex to the German real estate investment company KanAm Grund Kapitalanlagegesellschaft (KAGK) has come back to bite it.  The German firm sold the complex in 2008 to a local entity -- the Tarrant County College District (TCCD).

According to local news reports, RadioShack is nearly half a million dollars ($480K USD) behind on its rent.  This may be intentional.

RadioShack had already considered downsizing from the expensive headquarters in 2010, but had been swayed in the eleventh hour when the Fort Worth city government offered a package $10.7M USD in tax rebates and other incentives.  Since 2013 it's been appearing to yet again consider an exodus, scaling back on its rented space at the complex.

X. There's Still Life Left in These Old Batteries

Bringing the light back to RadioShack's new operations won't be easy.

RadioShack lights
[Image Source: EPA/Getty Images]

But there is potential.  To lay to rest one tired line, online retail does not make a business like RadioShack inherently nonviable.  Best Buy, for example, reported quarterly revenue of $11.4B USD for the holiday season.  The chain has a market cap of $13B+ USD.  In Q4 2013 through Q3 2014, Best Buy earned a total (combined) earnings of $2.33 USD/share -- $816M USD in net profit.  In the last four reported quarters it's posted four straight earnings quarters of profitability and four straight quarters of profit.

Best Buy
[Image Source: NASDAQ]

Amazon.com, Inc. (AMZN) -- the eminent "online sales" boogeyman -- posted a net loss for a year long period from Q4 2013 through Q3 2014 of $216M USD.  It had two profitable quarters followed by two straight quarters of losses.  Its most recent reported quarter -- Q4 2015 -- saw a turnaround, with a $214M USD net profit.  But overall Amazon has underperformed on earnings two quarters, outperformed for one quarter, and basically broken even for the remaining quarter, looking at last year.

Amazon earnings
[Image Source: NASDAQ]

Most analysts rate both Amazon and Best Buy a "strong buy".  But a minority accounting for nearly half of analysts rate Amazon a hold.  It appears that while many are still captivated by Dot-com bubbleish thinking of "online is the future of everything" some are realizing that offline sales are actually outperforming online ones at present.

Of course that doesn't mean that RadioShack is guaranteed profit.  Both online and offline retail do share one thing in common -- market consolidation.  Fewer retailers has led the survivors in both spaces (e.g. Best Buy and Amazon) to profit take.  But many (CompUSA and Circuit City, for example) have seen a slow slide to oblivion.

Best Buy

Best Buy and Amazon have both profited, as others have fallen. [Image Source: ReadWrite]

In other words, perhaps more so than ever before it's feast or famine in the consumer electronics market, both online and off.  If General Wireless can steer RadioShack back to its path of success that it traveled on for more than four decades, then RadioShack may be far from dead.

And a final thing worth noting -- RadioShack does still have some appeal for hobbyists based on its lingering offerings of small electronics components.  Many have moved on to Amazon.  But General Wireless if it plays its cards right will be vying not only for the consumer electronics market, but for the hobbyist electronics market as well.  That was the vision that Tandy build the RadioShack brand upon, after all.

This was evidenced by reactions to bankruptcy, which ranged were bittersweet ranging the full gamut from nostalgia, to cynicism, to regret.  While RadioShack in its current form may lack appeal for many, it's clear that many still have a relative fondness for the brand.  That fondness has been built on longevity.  And after surviving so many close calls over its long history, RadioShack can't be counted out unless it closes the doors on its last store.

Bloomberg Businessweek
[Image Source: Bloomberg Businessweek]

Some may say this is the end of the road, sure.  But in all honesty there's life yet in those old batteries.  The only question is -- "How much?"

Sources: RadioShack [press release], [potential store closures list], Funding Universe [History of RadioShack], WSJ [overview of recent downturn]





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