RadioShack Corporation's Store Closure Plans Hit a Snag

RadioShack Corporation isn't getting support for its restructuring plan from creditors.

Apr 22, 2014 at 1:00PM

Last month, RadioShack Corporation (NYSE:RSHCQ) announced plans to close up to 1,100 stores. Comparable-store sales at the struggling electronics chain fell 8.8% last year, culminating in a 19% decline during the fourth quarter. This led to a full-year adjusted loss of more than $300 million, and RadioShack's management clearly recognized the need for drastic action to stop the bleeding.


RadioShack posted a big loss in 2013.

However, RadioShack needs the approval of two major creditors to close this many stores. So far, it has not succeeded in getting the lenders on board, according to The Wall Street Journal. Unfortunately, the delay is further endangering RadioShack's long-term survival chances. Best Buy (NYSE:BBY) would be the biggest beneficiary if RadioShack goes under, as it would become the last national electronics retailer.

Too many stores
In previous years, RadioShack pursued growth by placing stores closer and closer together. This was a viable concept when the company was primarily selling specialized electronics items that were not widely available and therefore carried high margins.

By contrast, today RadioShack's business is heavily weighted toward selling mobile products: cellphones, tablets, and related accessories. Competition is brutal in this market. RadioShack competes with wireless carriers, online retailers, discount stores, Best Buy's big-box stores, and small-format Best Buy Mobile stores. As a result, RadioShack's gross margin has plummeted in recent years.

RSH Gross Profit Margin (TTM) Chart

RSH Gross Profit Margin (TTM). Source: YCharts.

In this context, it's no surprise that RadioShack cannot support the operating costs of its massive store base, which includes more than 4,000 company-owned locations. In many markets, the company has far more real estate than it needs. One RadioShack executive recently noted that it had eight stores within five miles of his home in Fort Worth! Closing stores is thus a no-brainer.

Problems with the lenders
That said, under its new loan and credit line agreements, RadioShack needs its lenders' consent to close more than 200 stores per year. Agreeing to the store closing plan should also be a no-brainer for the lenders.

However, some lenders are hoping to receive a portion of the cash RadioShack would free up from liquidating nearly 25% of its inventory. Others are concerned that the store closing plan doesn't go far enough. RadioShack seems to have a problem of "too many cooks in the kitchen."

The longer these negotiations take, the longer RadioShack will continue to burn cash. Last year, the company only avoided a significant use of cash through a $242 million decline in accounts receivable that reduced working capital. RadioShack won't be able to replicate that performance going forward, and the company's $554 million of liquidity won't last long if it can only close 200 stores a year.

Best Buy executives must be happy
Best Buy faces many of the same headwinds as RadioShack, but it is in a much stronger position because it has a more diversified business. Best Buy's partnerships with popular brands like Samsung also give it an edge. Most important, Best Buy is still profitable, although its earnings have been going in the wrong direction.

Samsung Experience Shop

The Samsung Experience Shop differentiates Best Buy from other retailers. Source: Best Buy.

While Best Buy could benefit from RadioShack's store closure plan -- which would lessen competition for its own stores -- it would benefit even more if RadioShack folded entirely. With RadioShack on the ropes, it would not be surprising if Best Buy becomes more aggressive in terms of marketing and promotions in hopes of taking market share.

Foolish wrap
RadioShack is in big trouble today. Unfortunately, lenders have it over a barrel, as it cannot close very many stores without getting permission. The lenders don't have much urgency to act because their claims are "first in line" if RadioShack were to go bankrupt. Shareholders don't have that luxury.

As a result, investors should stay far away from RadioShack. The company should be able to make it through 2014, but by the middle of 2015 it could face serious liquidity issues unless the lenders relent. Best Buy has better prospects, but it is still a very risky investment candidate. Even if RadioShack disappears, it will face brutal competition from discounters and online merchants that will make earnings growth challenging.

Your credit card may soon be completely worthless
The plastic in your wallet is about to go the way of the typewriter, the VCR, and the 8-track tape player. When it does, a handful of investors could stand to get very rich. You can join them -- but you must act now. An eye-opening new presentation reveals the full story on why your credit card is about to be worthless -- and highlights one little-known company sitting at the epicenter of an earth-shaking movement that could hand early investors the kind of profits we haven't seen since the dot-com days. Click here to watch this stunning video.

Adam Levine-Weinberg has no position in any stocks mentioned, and neither does The Motley Fool. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

1 Key Step to Get Rich

Our mission at The Motley Fool is to help the world invest better. Whether that’s helping people overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we can help.

Feb 1, 2016 at 4:54PM

To be perfectly clear, this is not a get-rich action that my Foolish colleagues and I came up with. But we wouldn't argue with the approach.

A 2015 Business Insider article titled, "11 websites to bookmark if you want to get rich" rated The Motley Fool as the #1 place online to get smarter about investing.

"The Motley Fool aims to build a strong investment community, which it does by providing a variety of resources: the website, books, a newspaper column, a radio [show], and [newsletters]," wrote (the clearly insightful and talented) money reporter Kathleen Elkins. "This site has something for every type of investor, from basic lessons for beginners to investing commentary on mutual funds, stock sectors, and value for the more advanced."

Our mission at The Motley Fool is to help the world invest better, so it's nice to receive that kind of recognition. It lets us know we're doing our job.

Whether that's helping the entirely uninitiated overcome their fear of stocks all the way to offering clear and successful guidance on complicated-sounding options trades, we want to provide our readers with a boost to the next step on their journey to financial independence.

Articles and beyond

As Business Insider wrote, there are a number of resources available from the Fool for investors of all levels and styles.

In addition to the dozens of free articles we publish every day on our website, I want to highlight two must-see spots in your tour of

For the beginning investor

Investing can seem like a Big Deal to those who have yet to buy their first stock. Many investment professionals try to infuse the conversation with jargon in order to deter individual investors from tackling it on their own (and to justify their often sky-high fees).

But the individual investor can beat the market. The real secret to investing is that it doesn't take tons of money, endless hours, or super-secret formulas that only experts possess.

That's why we created a best-selling guide that walks investors-to-be through everything they need to know to get started. And because we're so dedicated to our mission, we've made that available for free.

If you're just starting out (or want to help out someone who is), go to, drop in your email address, and you'll be able to instantly access the quick-read guide ... for free.

For the listener

Whether it's on the stationary exercise bike or during my daily commute, I spend a lot of time going nowhere. But I've found a way to make that time benefit me.

The Motley Fool offers five podcasts that I refer to as "binge-worthy financial information."

Motley Fool Money features a team of our analysts discussing the week's top business and investing stories, interviews, and an inside look at the stocks on our radar. It's also featured on several dozen radio stations across the country.

The hosts of Motley Fool Answers challenge the conventional wisdom on life's biggest financial issues to reveal what you really need to know to make smart money moves.

David Gardner, co-founder of The Motley Fool, is among the most respected and trusted sources on investing. And he's the host of Rule Breaker Investing, in which he shares his insights into today's most innovative and disruptive companies ... and how to profit from them.

Market Foolery is our daily look at stocks in the news, as well as the top business and investing stories.

And Industry Focus offers a deeper dive into a specific industry and the stories making headlines. Healthcare, technology, energy, consumer goods, and other industries take turns in the spotlight.

They're all informative, entertaining, and eminently listenable ... and I don't say that simply because the hosts all sit within a Nerf-gun shot of my desk. Rule Breaker Investing and Answers contain timeless advice, so you might want to go back to the beginning with those. The other three take their cues from the market, so you'll want to listen to the most recent first. All are available at

But wait, there's more

The book and the podcasts – both free ... both awesome – also come with an ongoing benefit. If you download the book, or if you enter your email address in the magical box at the podcasts page, you'll get ongoing market coverage sent straight to your inbox.

Investor Insights is valuable and enjoyable coverage of everything from macroeconomic events to investing strategies to our analyst's travels around the world to find the next big thing. Also free.

Get the book. Listen to a podcast. Sign up for Investor Insights. I'm not saying that any of those things will make you rich ... but Business Insider seems to think so.

Compare Brokers