Tandy also made another management decision with long-term repercussions: it pursued a strategy of opening many small, leased stores. Tandy closed unprofitable stores, shuttered the mail-order business and reduced the number of items sold from 40,000 to 2,500. By 1960, although it operated nine stores and a mail-order business, RadioShack was destitute, and it was acquired in 1963 by Tandy Corporation for a mere $300,000. Over the years, RadioShack built its business by supplying original and replacement parts for radios and other electrical devices its target audience was hobbyists. “RadioShack” referred to a wooden cabinet that was used to protect and store a commercial ship’s radio equipment. RadioShack was founded in Boston in 1921 by brothers Theodore and Milton Deutschman, who serviced the growing ham radio industry. Thus, RadioShack’s Chapter 11 experience has lessons for lenders and investors about the difficulties of restructuring retailers in the 21st century. Whether the new RadioShack template will be successful - or just the most recent attempt to revive a once-thriving retail mainstay - remains to be seen. Many other well-known retailers - Circuit City, Borders, Filene’s Basement and Linens’n’Things - were all liquidated in Chapter 11, victims of changing consumer tastes and the harsh realities of bankruptcy. But the fact that RadioShack survived at all is proof of the brand’s continued strength. The majority of the surviving stores will be co-branded with Sprint cell phones and accessories and will continue RadioShack’s focus on that sector. The new RadioShack operates approximately 1,700 stores, down more than 75% from its pre-bankruptcy high of 7,500. Finally, it recognized the importance of e-commerce far too late.Īlthough battered and much reduced in size, RadioShack survived its trip through Chapter 11 after being acquired by Standard General, a hedge fund that was its largest pre-petition lender.
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It operated too many small, unprofitable stores, and its dizzying changes in focus confused its customer base. The Internet truly has been disruptive, particularly for merchants who sell commodity goods, but many of RadioShack’s problems were self-inflicted.
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The troubles that beset RadioShack and led to its Chapter 11 filing reflect the dramatic changes in retailing over the past 15 years. The Chapter 11 case was nasty and litigious it imposed deep losses on RadioShack’s trade and other unsecured creditors, which are likely facing recoveries of just pennies on the dollar. None of its makeovers were successful, and some were so abruptly abandoned that their results couldn’t even be properly evaluated. Like a fading Hollywood star resorting to plastic surgery to hold off the ravages of time, RadioShack’s many efforts to reinvent itself from 2000 to 2015 had failed. Selbst, Partner, Herrick, Feinstein LLPFew investors or lenders in the retail industry could have been surprised when RadioShack sought Chapter 11 protection in February 2015.