RadioShack Corp. entered bankruptcy Thursday with a plan to dramatically shrink its store base and move forward in a partnership with Sprint. But creditors will ultimately decide the fate of the retail icon.
The 94-year-old Fort Worth-based company, which long catered to geeks by offering electronic parts and gizmos and ushered in the technology era by selling products ranging from CB radios to cellphones, filed for Chapter 11 bankruptcy protection in Delaware after nearly three years of losses and declining sales left it with dwindling cash.
Its filing listed assets of $1.2 billion and total debt of $1.3 billion. Among its largest unsecured creditors is Tarrant County College, which owns the company’s riverfront headquarters and is owed $470,833.33 in back rent.
RadioShack also owes Sprint PCS $6.07 million, Verizon Wireless $2.8 million and FedEx $1.48 million.
The company said it has a deal to sell 1,500 to 2,400 of its 4,000 company-owned stores to Standard General, a New York hedge fund that provided a rescue loan to the company last fall. Separately, Sprint has agreed to set up operations inside up to 1,750 stores, which would carry both the RadioShack and Sprint names.
The remaining stores will be closed and their inventory sold off. All the moves require approval from the Bankruptcy Court and creditors, and other parties will be able to submit offers.
“These steps are the culmination of a thorough process intended to drive maximum value for our stakeholders,” CEO Joseph Magnacca said in a statement. RadioShack said it has secured about $285 million in debtor-in-possession financing.
On Wednesday, RadioShack filed notices with the Texas Workforce Commission saying that if it did not find a buyer by March 15, it would close its corporate headquarters, where it has 683 workers. An additional 344 employees work at a distribution center on Terminal Road in Fort Worth.
In a statement, Sprint said that it plans to occupy about a third of the space at each RadioShack location and that its employees will sell cellphones and plans on Sprint, Boost and Virgin Mobile services. The stores would be co-branded, but Sprint would be the “primary brand” on storefronts, it said.
“We’ve proven that our products and new offers drive traffic to stores, and this agreement would allow Sprint to grow branded distribution quickly and cost-effectively in prime locations,” Sprint CEO Marcelo Claure said. “Sprint and RadioShack expect to benefit from operational efficiencies and by cross-marketing to each other’s customers.”
The additional stores will help the wireless carrier gain market share against its larger competitors, Verizon Wireless and AT&T Wireless, telecommunications analyst Jeff Kagan said.
“Sprint is a company in the early stages of reinventing themselves under new leadership,” he said. “This will give Sprint many more storefronts to sell wireless devices from, and that is very important going forward.”
A decade of decline
For RadioShack, the bankruptcy filing comes after a year of turmoil and battles with lenders.
About a year ago, the company signaled a high level of distress by proposing to close a quarter of its stores. But lenders blocked that plan and ultimately forced the company’s hand as mounting losses and disappointing sales depleted funds needed to pay for store renovations laid out by Magnacca.
At its peak on June 17, 1999, RadioShack’s stock traded for $90.56, a time when the company boasted that 94 percent of the U.S. population lived five minutes from one of its stores and it was successfully selling cellphones, satellite television and Internet service.
But as shoppers took their business to big-box retailers like Best Buy, phone stores and online rivals like Amazon.com, RadioShack struggled to find a niche, and its 4,000-plus stores became a disadvantage. Even trendy and sometimes self-deprecating ads featuring 1980s celebrities and comedy singer “Weird Al” Yankovic did not entice customers to buy more than just batteries from RadioShack.
“The electronics business changed, and RadioShack didn’t change with it,” said Southern Methodist University marketing professor Ed Fox. “They never got the orientation of electronics as appliances rather than the focus of hobbyists.”
This week, the New York Stock Exchange delisted the company’s shares, which traded below $1 for months and dropped to 24 cents Monday.
The company has posted losses for 11 straight quarters, most recently a $161.1 million decline for its third quarter, which ended Nov. 1. Revenue also dropped 16 percent to $650.2 million in that quarter, and RadioShack said it planned another round of cost-cutting and store closures to help save $400 million.
“There is no predetermined outcome to our recapitalization work, and there can be no assurance that we will be able to successfully implement our long-term solution,” RadioShack chief executive Joseph Magnacca warned investors when discussing the quarterly earnings. RadioShack ended the quarter with a total liquidity of $62.6 million which included $43.3 million in cash and cash equivalents.
With losses mounting, RadioShack laid out a plan last year to close as many as 1,100 of its underperforming stores. But lenders blocked the plan, setting the company on a crisis path. Last fall, the company warned that it might have to seek bankruptcy protection but was bailed out when hedge funds led by Standard General provided new financing to get it through the holidays.
But in December, Salus Capital Partners, the main lender that blocked RadioShack’s store-closing plan, claimed that the refinancing violated its loan terms, and the company once again warned it might run out of money.
Separately, the Labor Department announced it was investigating RadioShack’s management of its 401(k) plans to ensure the company was adhering to federal regulations. On Sunday, the company stopped matching contributions to the plans.
Industry analysts predicted for months that if RadioShack did not have a successful holiday retail season or receive a large infusion of cash, bankruptcy and possibly liquidation of the company was imminent.
“It’s unfortunate that a brand with such an iconic stature has gotten to this point. But we’ve seen that with other brands just as prestigious,” said Robert Leone, a marketing professor at TCU’s Neeley School of Business, in December. “Times have changed, and they haven’t changed with it.”
Michael Pachter, an analyst at Wedbush Securities, said RadioShack could have avoided bankruptcy if Magnacca, who joined the ailing company about two years ago, had been able to implement his turnaround plan.
“I think that it was essential to his plan that they shrink their footprint and get out of unprofitable leases, and his hands were tied by the creditors,” Pachter said. “New management did everything right but far too late to make a difference, and they had insufficient capital to advertise to consumers that the store had been reinvented.”
‘Sad day’ in Fort Worth
Shoppers at RadioShack locations in Fort Worth said this week that they were sorry to hear that the company might be closing stores but were more concerned about the employees who are likely to lose their jobs.
The retailer, with more than 30 stores just in Tarrant County, started clearance sales at numerous locations this week.
Orlando Davis, who lives in the Meadowbrook neighborhood, has shopped for cables and other components for about a decade at a store on Meadowbrook Drive off Loop 820. This week, he was shopping for cords to improve his surround-sound system.
“This store is three minutes from my house,” Davis said, adding, “I don’t like to see people losing their jobs.”
Tammy and Tyron Johnson drove from the Stop Six area for a remote-control helicopter, a DVD player and headphones. The couple said they bought their cellphones through RadioShack.
“It’s going to be hard losing the store. It’s a good store,” Tammy Johnson said. “I’ve been through it, losing a job. It’s so hard to find a job. I hate that people will lose their jobs.”
At the Sundance Square store downtown, Thomas Slagle of Mansfield said, “I don’t know where I’m going to find my batteries. It’s sad.”
RadioShack has been part of the Fort Worth community since 1963, when it was acquired by Tandy Corp., a leather goods company run by Charles Tandy. The name became synonymous with its first mass-marketed personal computer, the TRS-80. Tandy Corp., which changed its name to RadioShack in 2000, was a longtime Fort Worth benefactor. But cutbacks in recent years caused the company to withdraw.
“It’s a sad day. RadioShack is one of those legacy corporations in the city of Fort Worth,” Mayor Pro Tem Sal Espino said. “Almost everyone in Fort Worth remembers going into a RadioShack store and buying an electronic device or a gadget. … The end of an era is coming, and it’s really unfortunate.”
This report includes material from the Star-Telegram archives.