Views and opinions expressed on this blog are solely my own and do not reflect views of any organizations or employers with whom I am affiliated.

Saturday, February 21, 2015

How To Be More Like RadioShack

I've been waiting for an appealing topic to discuss, and of course, John Oliver and RadioShack ("RSH") presented the perfect opportunity. When RadioShack finally filed for Chapter 11 protection, John Oliver did this bit to remind us all of the once venerable company's history: 



Like Mr. Oliver and most others who live in the U.S., I don't find it surprising that RadioShack filed for bankruptcy. What I do find surprising, however, is that it took so long. I don't mean to be glib with the title of this post, but really, how did this company stay afloat after all these years of underperformance? And is there something to be emulated by the survival of a concept that many deemed obsolete so long ago?

Just a quick recap from WSJ: RadioShack filed for bankruptcy on February 5th. Senior lender Standard General will acquire between 1500-2400 stores and may strike a deal with Sprint to allow the telecom company to operate up to 1750 of them. RSH owns about 4000 stores in the US , and its domestic and international franchise stores aren't part of the restructuring.

RSH didn't go down without a fight, however. Leading up to the filing, the company quarreled with one of its distressed investors, Salus Capital (an investment firm owned by Harbinger). Salus eventually forked over the $250MM for the loan that it had promised to RSH, which came with a covenant requiring Salus' approval in case RSH wanted to close more than 200 stores a year.For more on this altercation, go here to the Bloomberg story

Salus was obviously one of the last-resort lenders for RSH. Bloomberg contends: 

"As of the end of last year, the loan accounted for almost one-third of all of Salus’s investments.For Salus and its president, Andy Moser, the deal was to be by far the biggest in the firm’s short history. It’d move the lender beyond its small niche -- handing out loans of about $25 million to financially-troubled companies -- and put a high-profile deal in its portfolio that would get the attention of Wall Street bankers."

The straw on the camel's back was an imminent violation of a liquidity test required to turn Standard General's investment into equity. In January, RSH 6.75% 2019 bonds were trading in the single digits. 

"RadioShack received a rescue financing package from Standard General in October that converted the company's $535 million revolver into a $275 million term loan, and included a $120 million letter of credit, and $140 million of revolving loans.

The $120 million investment provided by Standard General and Litespeed Management is intended to be converted into equity upon satisfaction of certain conditions – which included the company having at least $100 million of available cash and borrowing capacity as of Jan. 15." LCD

RSH tried to meet this cash test by closing 1,100 stores. Salus refused, since the stores' profits were part of Salus' collateral. For more on RSH's efforts to operationally restructure, check out FTI's first day motions testimony on Pacer




I guess we can conduct some thought exercises here as to what would have been the least messy way for RSH to restructure. It would have been best if the company was able to shut doors of the 1,100 stores without Salus' consent. That way, the company could shrink itself to a manageable size. Also, RSH wouldn't have had to invest in giving the underperforming stores a face-lift, which proved to be a pernicious strategy.

This obviously wasn't an option. And without this covenant, RSH may not have gotten any financing at all. In my opinion, the best thing to do would have been to do an out of court restructuring instead of taking Salus' money. It bought more time, but it also removed the option of the Company being able to carry out its operational restructuring plans under its own terms. I'd love to hear more opinions about how RSH could have prevented this ignominious end.





Okay, so back to how this enterprise lasted so long. Here's an enlightening article detailing the history of RadioShack on Bloomberg and it appears that until the mid 2000's, the company was very good at doing what all start-ups are advised to do: pivot! 

RSH started out as two companies: Tandy, a supplier of leather shoe parts and RadioShack, a retail store and mail-order operation that served ham radio needs of ship officers. Tandy acquired RadioShack in 1963 and espoused the strategy of appealing to hobbyists. Each store was staffed with knowledgeable employees and small add-on items that catered to tinkerers. This strategy served the company well for many years and helped established a repeat customer base.  And yest, they sold a lot of batteries. 

In the 70's, RSH shifted its focus to CB radios, which at one point made up almost 30% of sales. When the radio boom ended, the company pivoted once again, taking a big risk by selling the first mass-market personal computer TRS-80. This strategy also proved to be successful, and RSH spent the next decade manufacturing and selling its own computers. By the 1990's, it became difficult for the retailer to compete with big manufacturers and in 1993, RSH stopped producing computers. Its management team was looking for a new anchor and found it in cellphones. 

The CEO at the time began making deals with cellphone carriers that gave RadioShack a cut of the initial device AND the monthly payments. The triumphant rise of the company's cellphone business paved the way for the business to expand into new types of retail boxes, including Computer City. 



By the mid 2000's, RSH was on a downward path. The cellphone business faded as competition rose and carrier branded stores became ubiquitous. The e-commerce business suffered also, partly because the executives did not want to divert attention from the stores. 

And here was the problem: when the cellphone business began dying, instead of pivoting and finding another anchor, RSH continued to fight to stay relevant in the mobile business. Many of the products, such as answering machines, became irrelevant, and employees turned into obtrusive sales people instead of quirky techies. Perhaps it would have been better if the Company had reassessed its opportunities and tried to serve another niche of under-served consumers instead of following the mobile train to its demise.  

7 comments:

  1. I enjoyed your blog. Thank you for sharing your opinions.  I will share it with everyone. We always give people solutions to health protection as mosquito screen door ((lap dat cua luoi chong muoicua luoicua luoi chong muoi tai Ha Noi)

    ReplyDelete
  2. Now I can Understand what is the hall sound is . thanks a lot for your awesome tutorial bro.
    I just loved it. because I can learn some
    valuable things from it .Visit web help thanks.
    there i my little web help

    ReplyDelete
  3. We can help you with your application. You can BORROW any amount and use it to pay off all your debts, speak to us and we will assist you. If you where turned down we welcome you to re-apply with us. Try us for real service. We will review the application and keep you informed every step.

    • Loans For Any Purpose?
    • Apply Instantly Now?
    • Your Money In 4 Hours?
    • No Personal Credit CHECKS

    Apply for no credit check loan We are standing by to finance your dream. For more info email us with your loan informations at: opploansLLC@gmail.com

    ReplyDelete
  4. LE-MERIDIAN FINANCING SERVICES. the loan company that grant me loan of 5,000,000.00 USD When other loan investors has neglect my offer but Le_Meridian Funding Service grant me success loan.they are into directly in loan financing and project  in terms of investment. they provide financing solutions to companies and individuals seeking access to capital markets funds, they can helped you fund your project or expand your business.. Email Contact:::: lfdsloans@lemeridianfds.com Also  lfdsloans@outlook.com or Write on whatsapp Number  on    1-(989-394-3740)Good Intend,

    ReplyDelete
  5. This article will outline all the different strategies you should be aware of when it comes to soccer.
    Top ias coaching in mumbai

    ReplyDelete
  6. The online gambling Another important thing is to contact various communication lines novice player should choose a site with the team. Inquire 24 hours a day if there is a problem, whether depositing - withdrawing or any problems at least when there is a problem. ufa

    ReplyDelete
  7. Trends in the Consumer Electronics and Film Coating Market ฟิล์มติดรถยนต์เชียงใหม่ When it comes to airport film coating there are basically two methods available to the consumer. The first method is dry film coating, which uses chemicals to coat the film after it has been applied. The other method uses a wet film coating. It also depends on the type of film to be applied.

    The goal of film coating processing is to apply a thin white, sticky film, up to 100 m, across the top of the object to be coated. Too much air pressure or too much water can create poor coverage and orange peel. Too little pressure can produce a sticky film that pulls and sticks. The film coating should be applied in thin layers to prevent bleeding and smearing. Usually, one layer is enough for normal usage.

    A good coating type to use in the consumer electronics market is a conductive coating type. It is usually made of a very thick, clear plastic compound. This is then poured into an automatic gun that shoots it through the air at very high velocity. Most of these guns can handle air compressors as well.

    Another type of consumer electronics coating is called a plating film. This is generally a clear, thin film coating that is applied through chemical baths. When this is applied, it seals the top and sides of the object without having to use any adhesives. These types of chemicals are safe to use and can withstand many bumps and scrapes that may occur during their use.

    The plating film market is a competitive one and there are many companies competing to provide the best and most effective coating for consumers' end use. These include film manufacturers as well as suppliers. These companies all have their own strengths and weaknesses. Some are better than others at applying various types of materials and chemicals onto a wide range of objects. There are even some plastics that are resistant to most coatings. These are generally found in the automotive industry where extreme temperatures pose a problem.

    In the last few years, the popularity of transparent conductive coatings has increased in the consumer electronics market. One reason for this is that it is easier to apply than other thin film coatings. This type of coating is generally used for digital electronics in computer systems, electronics appliances and telephone hardware. In addition, it can provide a higher level of protection than some other types of plating.

    One of the advantages of using a flexible coating type is that it is easily customizable and can be changed when needed. For example, some types of plating have fixed requirements that cannot be changed. Other types of coating types can be easily changed depending on your specific needs. If you find a new application that requires a particular thickness, you can easily adjust it for the job. You should also check with your suppliers to see if they offer any type of flexible coating analysis.

    The film coating market is still evolving with many new types of applications being introduced each year. It is important that you do your research and find the right type of coating for your application. For example, the popular black oxide coating has met some resistance lately, but many manufacturers are introducing white to produce a more reflective and smooth surface. The availability of transparent conductive coating analysis will help you make the right decision regarding the best coating technique for your application.

    ReplyDelete