RadioShack Rescue Raises Question of What’s Worth Saving

RadioShack Corp.’s effort to seek financing and stave off bankruptcy raises a key question for investors, analysts and the customers who’ve shunned the electronics retailer for years: What’s worth saving here?

The company, which said yesterday it was in advanced talks with creditors and other parties on a potential rescue package, has suffered three years of declining sales and 10 straight quarterly losses. The stores have become increasingly irrelevant to shoppers, who can get their mobile devices and electronic doodads from e-commerce sites or Wal-Mart Stores Inc.

Fresh capital would give RadioShack more time to close underperforming stores and pursue a comeback, while also protecting debt and stockholders’ investments. Even so, bouncing back won’t be easy, analysts say, and RadioShack may need to draw on every last asset to make it work. The company told investors yesterday that if it can’t negotiate a deal with creditors and other parties, a bankruptcy may be inevitable.

“RadioShack’s biggest advantage is its convenience,” said Scott Tilghman, an analyst for B. Riley in Boston. “If they can better capitalize on that differentiation, there could be a reason for at least a scaled-down RadioShack business to exist.”

With that mind, here are some of the underlying strengths of RadioShack that could be instrumental to a turnaround.

A FAMOUS NAME -- Though it’s often seen as a 1980s throwback (the chain aired a Super Bowl commercial this year poking fun at its dated image), the RadioShack brand enjoys widespread recognition. It also evokes nostalgia for many Americans, who spent their childhoods browsing for radio-controlled cars or stereo equipment at the retailer.

“The brand still has very high awareness among U.S. consumers,” said Ted Marzilli, chief executive officer of YouGov BrandIndex, a research firm.

RadioShack, based in Fort Worth, Texas, sees enough value in its name that it’s currently increasing the number of private-label products the company sells.

“We’ve been keeping in mind the strength of the RadioShack brand,” CEO Joe Magnacca said yesterday on a conference call. “We’ve added more private brand options in areas like portable sound and power, thus deepening our penetration of private brand in our stores.”

Merianne Roth, a RadioShack spokeswoman, declined to comment.

SOME CHOICE LOCATIONS -- As part of its discussions with creditors, RadioShack is negotiating to close more of its 4,400 stores. If it can push ahead with that plan, RadioShack may be left with a healthier chain, with locations in some of the most highly trafficked retail spots in the U.S. That includes midtown Manhattan, downtown San Francisco and Chicago’s Loop.

The company may be able to play up the convenience of those locations. Oliver Wintermantel, an analyst at International Strategy & Investment Group in New York, suggests that RadioShack may fare better as a purveyor of items to tourists and urban dwellers.

In big cities, it can be easier to pop in and out of a RadioShack than to drive out to a big-box retailer. The high-profile locations also help market the brand, Marzilli said.

“They fill a niche,” he said.

REMODELED STORES -- RadioShack has completely revamped 84 locations, giving them a cleaner look that’s more reminiscent of an Apple store than a cluttered 1980s retailer.

The stores offer hands-on features, such as headphone demonstrations and a speaker wall, helping the remodeled branches outperform the rest of the chain, Magnacca said.

Changes at its traditional locations are helping too. The company is expanding an in-store repair service to 750 from 500 stores, and the program is “driving incremental profitable growth,” Magnacca said.

By selling merchandise like Beats headphones, RadioShack has done a good job positioning itself in the faster-growing accessories market, Wintermantel said.

LOW BAR FOR INVESTORS -- With the stock hovering around $1, you don’t need an Apple-style comeback to make decent money on the shares. While a bankruptcy probably would wipe out most equity investors -- and at least two analysts expect the stock to go to $0 -- a successful refinancing and turnaround would reward shareholders.

Yesterday’s news of potential financing sent the shares up 9.6 percent to $1.02 in New York trading. That signals some investors are looking past the dismal quarterly results RadioShack posted yesterday and toward a brighter future.

A CHANCE TO PIVOT -- Getting more of a financial cushion would let RadioShack try new approaches. One option would be to push into quirky gadgets that could be given as gifts -- the longtime domain of Sharper Image and Brookstone.

Still, that would be a perilous course, given the fate of those companies, B. Riley’s Tilghman said. Sharper Image closed all its stores in 2008. Brookstone, meanwhile, filed for bankruptcy this year and was then purchased by Chinese buyers.

The innovation of technology startups may help give RadioShack more unique products, helping it regain a bit of the appeal it once held.

Earlier this year, RadioShack announced a partnership with PCH International to help inventors design goods for the chain. On yesterday’s call, Magnacca said RadioShack is already tapping the program for several new items, as well as expanding a do-it-yourself group of products co-branded with Maker Media.

The company is updating 30 percent to 40 percent of its product assortment with new items this year, Magnacca said.

“We are making meaningful progress,” he said.

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