RadioShack Corporation (OTCMKTS:RSHCQ) nearly had its 94 years of existence come to an end last month. The electronics chain-store saw itself in Chapter 11 bankruptcy with its biggest creditor — Salus Capital Partners — ready to liquidate and wring out any value remaining in the company.
However, on March 31, a bankruptcy judge gave his approval to a plan by New York hedge fund Standard General that will keep 1,700 of RadioShack’s 4,000 stores open.
The idea here is to lease space in each store to Sprint Corp (NYSE:S) and rebrand RadioShack as a “consumer electronics convenience store” in small-town America.
Research showed that the company was losing money on big-name tech items such as tablets, laptops and cameras. However, in rural areas RadioShack made money on the little tech accessories like headphones, chargers and batteries.
Standard General’s managing partner Soohyung Kim explained:
“We always believed that when you stripped away its relatively heavy cost structure, and some of the legacy ways they did business, there actually was a core here that was worth saving.”
It seems to make sense that if you want to be profitable, you would gear your business to those aspects that have been successful.
But RadioShack faces a myriad of problems that stretch beyond the company’s organizational structure and locations. RSHCQ has some big issues — and the Standard General plan does nothing but delay the inevitable.
RadioShack’s Competititon Is Still There
BB&T Capital Markets analyst Anthony Chukumba has covered RadioShack for years. He’s voiced his skepticism to multiple outlets concerning the new company:
“The fact that they have a new lease on life does not change the competitive dynamics here … And to me it does not change the so many reasons that led them to going bankrupt in the first place.”
RadioShack operates in a world with giants — Target Corporation (NYSE:TGT), Wal-Mart Stores, Inc. (NYSE:WMT), Best Buy Co Inc (NYSE:BBY) and Amazon.com, Inc. (NASDAQ:AMZN) — and the competition in this space continues to grow. And RadioShack has consistently struggled to be competitive with prices that shoppers could find online.
A poll by the DealNews website found that many people avoided RadioShack because of its prices. And while the poll isn’t by any means a scientific study, there is plenty of evidence that prices have been a major obscacle to RadioShack’s success.
RadioShack Is Not a Relevant Brand
Standard General believes that a revamped cost structure and a change in culture could turn RadioShack around.
But to consumers the name RadioShack conjures visions of 16-byte home computers. And management knows this.
Remember the 2014 Super Bowl commercial featuring “Weird Al” Yankovic and a parade of ’80s icons marching through a RadioShack store? The spot’s tagline was, “The ’80s called, they want their store back.”
The ad did nothing but reinforce the brand’s lack of relevancy.
The presence of Sprint in RadioShack stores may bring in more foot traffic, but RadioShack is seen by many as a store for for consumers with no other options.
History shows us that we should be pessimistic about the new RadioShack. As Will Frohnhoefer, an equity research analyst at BTIG, told The Washington Post, “They had multiple years — a decade of decline — to try to reverse things, and they didn’t seem to come up with a coordinated strategy until very late in the game.”
As of this writing, Jason Jenkins did not hold a position in any of the aforementioned securities.
