RadioShack's Dead; Who's Next?

“Why does RadioShack ask for your phone number when you buy batteries? I don’t know.”

— Cosmo Kramer, Seinfeld, 1996

After nearly a hundred years in business, RadioShack is folding.

Last week, the national electronics retailer filed for Chapter 11 bankruptcy protection, and the NYSE suspended its stock.

The nearly 4,000 retail outlets belonging to the company are expected to be sold off, shut down, or converted into Sprint “store within store” concepts.

The death of RadioShack should teach us a few things about the next possible companies to go belly up…

The Long Road to Bankruptcy

Way back in 1963, the struggling ham radio mail-order company was acquired by the Tandy Corporation.

Tandy, which began in leather craft, was on a rapid course of growth and expansion throughout the postwar period. It went on a buying spree and snapped up a number of do-it-yourself craft outlets, which it rolled together into a diversified hobbyist company.

The company bought RadioShack for $300,000 after it suffered losses through the early ’60s. Tandy turned the company around and catapulted it into the 8-bit “microcomputer” era of home computers.

It was an amazingly strong transition from broadcast electronics to digital hardware. All the while, the company retained its hobbyist electronics base.

By the ’90s, however, RadioShack had stopped selling its own brand of Tandy computers and moved into more general electronics retail.

Really, this was the beginning of the company’s demise.

It was at this time that big box electronics retailers had risen to prominence, and Best Buy, Fry’s, CompUSA, and Circuit City were all on growth paths. Their larger physical footprints afforded better selection and fit better into the big box retail paradigm. RadioShack retained its small shop size and more concentrated inventory through a time when the market was not favorable to that design.

It would only be a few years before Internet retail would force big box retailers into consolidation. That’s the era in which we live today.

RadioShack has been competing with big box stores, which themselves have been competing with the Internet.

In a last-ditch attempt at revitalizing itself, RadioShack briefly rebranded itself as “The Shack” in 2009. This abortive attempt at an image change emphasized the company’s focus on mobile phone sales, which it rode into bankruptcy.

With $1.2 billion in assets to its name, RadioShack lists $1.38 billion in liabilities on its bankruptcy filing.

The company’s largest shareholder is Standard General, and it plans to close all the shops that aren’t sold or converted. Mobile carrier Sprint (NYSE: S) expects to buy approximately one-third of the floor space in 1,750 existing RadioShack stores.

Is This a Good Thing?

Sprint is the perennial third-place carrier in the tough U.S. wireless market, and in the mid-2000s, it started receiving cash infusions from Japanese wireless carrier SoftBank.

In 2012, the company threw down more than $20 billion to acquire a 70% stake in Sprint, but the wireless carrier has been suffering through an extended loss of postpaid subscribers. It’s been operating with negative cash since SoftBank’s acquisition, and its stock dropped 60% in value over the course of the last year.

It is in what the company is calling an extended reorganization period.

An expansion of its retail footprint is not likely to help.

In fact, history has shown us that an improved retail presence is exactly the wrong approach.

Tech companies that are swimming against the current usually find retail space to be more of an anchor than a life preserver.

Lots of companies have attempted their own “Apple stores” that mimicked the surprise hit scored by Apple (NASDAQ: AAPL), but few have been able to pull it off.

Palm Inc., which led the mobile device revolution many years ago with its handheld computers, was one of the first real smartphone companies. It was also the first smartphone company to have its own branded retail stores.

As is often the case with early entrants, Palm took its position in the smartphone market before it had fully matured, and it had to endure difficult growing pains. Despite releasing what were widely considered the best smartphones in the market, the company was losing money.

In 2008, it had to close down all its branded Palm retail stores after their five-year run in operation. The retail failure was attributed to the stores’ small line of products and accessories and their less-than-knowledgeable staff.

Canada’s Research in Motion (NASDAQ: BBRY) attempted to start its own BlackBerry store initiative in 2007, six months after Apple launched the iPhone. It only opened one single store but had to choke the plans to expand as the company fell into a tailspin.

Sony announced in 2014 that it would be closing the majority of its branded retail stores in an attempt to streamline and become a more nimble company.

Though the Japanese consumer electronics company is keeping 11 locations open, its desire to cut back speaks loudly of the problems with running a retail outlet in the era dominated by online shopping.

For companies peddling merchandise, retail floor space has become something of a liability.

For mobile phone operators, however, it becomes an important customer service interface. It lets customers not only shop but also solve billing and service issues.

Unlike cable and Internet service provider offices, which are few in number and often have long lines and worse service than the DMV, mobile carrier stores are fast and ubiquitous.

RadioShack used to pride itself on its ubiquity. There were so many stores, in fact, that some 500 stores were closed in the mid-2000s because they were too close together. They ended up being each other’s closest competitors.

With mobile carriers, this is less of a problem. It’s entirely possible that Sprint could use RadioShack’s bankruptcy to drive a customer service revitalization.

Good Investing,

Tim Conneally

 @TimConneally on Twitter

For the last seven years, Tim Conneally has covered the world of mobile and wireless technology, enterprise software, network hardware, and next generation consumer technology. Tim has previously written for long-running software news outlet Betanews and for financial media powerhouse Forbes.