February 6th WSJ
Radio Shack Spirals into Bankruptcy
February 6th, 2015
RadioShack filed for Bankruptcy Thursday due to a long spiral that landed it in retail limbo. Standard General has agreed to buy about $4,000 of its stores and run about 1,750 as co-branded shops with Sprint Network,to stop a liquidation of their inventory that other stores like Circuit City and Borders have already been a victim of.
RadioShack has been in business for 94 years and really started to grow in the 1970s and 1980s when electronics started to become big. RadioShack’s cable and plugs were easily found on the web so RadioShack started relying on the sales of cellphones and accessories for sales. Then in 2007 the new IPhone came out which hurt the business due to the carriers cut back on the money they paid RadioShack and spent more on the expense of the IPhone that sold itself.
At the end of 2013, the company took out a $250 million dollar loan from an investment firm named Salus Capital Partners owned by Harbinger Group INC. The one catch was if RadioShack closed more than 200 stores per year in order to raise cash, Salus had to sign off on it, giving them the option to veto it. When RadioShack’s profits started to deteriorate early last year, RadioShack tried to close a quarter of their stores but Salus objected and was unwilling to see the inventory be sold -their only collateral- because they lacked confidence in the plan. The company made a series of missed financial targets and strategic confusion that handed power to their lenders which is the immediate reason for this event. The company also advertised a store overhaul which cost them millions that the company did not have. The events should give executives a caution sign on borrowing from non-traditional lending companies when their businesses start to fail. RadioShack has been struggling with creditors and trying to correct their debt for the past year through the selling of toys and becoming a place to repair broken cellphone screen
February 6th, 2015
RadioShack filed for Bankruptcy Thursday due to a long spiral that landed it in retail limbo. Standard General has agreed to buy about $4,000 of its stores and run about 1,750 as co-branded shops with Sprint Network,to stop a liquidation of their inventory that other stores like Circuit City and Borders have already been a victim of.
RadioShack has been in business for 94 years and really started to grow in the 1970s and 1980s when electronics started to become big. RadioShack’s cable and plugs were easily found on the web so RadioShack started relying on the sales of cellphones and accessories for sales. Then in 2007 the new IPhone came out which hurt the business due to the carriers cut back on the money they paid RadioShack and spent more on the expense of the IPhone that sold itself.
At the end of 2013, the company took out a $250 million dollar loan from an investment firm named Salus Capital Partners owned by Harbinger Group INC. The one catch was if RadioShack closed more than 200 stores per year in order to raise cash, Salus had to sign off on it, giving them the option to veto it. When RadioShack’s profits started to deteriorate early last year, RadioShack tried to close a quarter of their stores but Salus objected and was unwilling to see the inventory be sold -their only collateral- because they lacked confidence in the plan. The company made a series of missed financial targets and strategic confusion that handed power to their lenders which is the immediate reason for this event. The company also advertised a store overhaul which cost them millions that the company did not have. The events should give executives a caution sign on borrowing from non-traditional lending companies when their businesses start to fail. RadioShack has been struggling with creditors and trying to correct their debt for the past year through the selling of toys and becoming a place to repair broken cellphone screen