What Will Happen to RadioShack’s 5,000 Stores If It Goes Bankrupt?

By its own admission, RadioShack is almost out of money. The problem is acute. As management announced a second-quarter loss of $137 million and a 20% drop in comparable-store sales, it disclosed:

For the past 18 months we have been working hard on our turnaround plan. While we are advancing on many fronts, we may need additional capital in order to complete our work. As a result, we are actively exploring options for overhauling our balance sheet and are in advanced discussions with a number of parties. We are also working with our key financial stakeholders, including our existing lenders, bondholders, shareholders and landlords seeking to create a long-term solution. This may include a debt restructuring, a store base consolidation program, and other measures to make significant reductions in our cost structure. The details of a recapitalization have yet to be finalized, and we are reviewing several alternatives, some of which would require consent from our lenders. There is no pre-determined outcome to this work and, of course, we cannot be certain as to the outcome from the current discussions. Our highest priority is working on a solution to maximize the value to all of our stakeholders.

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Ironically, management announced in March it would close 1,100 stores, only to have the plan stopped by some of the retailer’s debt holders.

There is precedent of mass store closing by major retailers. Among the most recent are movie rental chain Blockbuster and book chain Borders. Neither company has any locations at all now. At one time, Blockbuster had more than 9,000 locations, an indication that even the largest chain can completely disappear.

There is a chance that in a restructuring, RadioShack would only close some of its locations. Management might return to its plan to shutter 1,100 stores. However, since that plan was announced, RadioShack’s situation has worsened, which means the figure may be too low. There is the chance that debt holders may decide that RadioShack has no chance to recover under any circumstances. RadioShack could be put into a liquidation, which means that its 5,000 stores would no longer serve a purpose. In either circumstance, RadioShack stores could eventually disappear. Presumably hundreds of landlords will be out of luck.

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