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RadioShack Loses CFO as It Grapples with Solvency

RadioShack in New York
A RadioShack in New York. photo/ps

Troubled RadioShack Corporation announced on Monday that its new chief financial officer John Feray had left the firm on Friday for "personal reasons" and that Holly F. Etlin would replace him. Feray had only been with the 4,485 store chain since February. He leaves amidst a frenzy of activity by the company to secure financing to at least keep it solvent until the end of the Christmas buying season.

Ms. Etlin, a managing director of AlixPartners and longtime RadioShack advisor, served as RadioShack's interim CFO from July 2013 to February 2014.

The company announced in 2013 that it was in trouble and that it would cut its company-owned stores by a thousand as well as trim costs. However, its lenders objected, telling RadioShack that it could only close 200 stores this year without further approval.

On September 11, RadioShack's CEO Joe Magnacca stated that his company was running out of cash. "For the past 18 months we have been working hard on our turnaround plan," he said in a press release. He added, "While we are advancing on many fronts, we may need additional capital in order to complete our work."

The Wall Street Journal reported that RadioShack was in fact negotiating with investment bank UBS and hedge fund Standard General to secure $585 million "to keep the struggling electronics retailer out of bankruptcy."

The deal to save the brand is not certain.

Chart by Blue MauMau. Sources: 2014 press release, 2012 10K

What will happen to RadioShack's Dealers?

With luck, the financing deal will go through. A buyer or group of buyers could also emerge to take over the brand and implement their vision.

But in the foulest scenario, would franchise owners be able to survive should their franchisor RadioShack liquidate? As a whole, it is doubtful. RadioShack's dealers have no franchisee association that can collectively deal to pick up the pieces of a failed brand. They also are conditioned to look one way, to their franchisor, for instructions on store operations, remodeling, support, branding, franchise sales, marketing and merchandise. Worse yet, these electronic retailers occupy a changing and unforgiving sector of the retail market that is strewn with dead bodies — think of giant electronics retailer Circuit City liquidating in 2009 or Ultimate Electronics in 2011. RadioShack itself has not been able to reverse same-store sales (WSJ $$) that have plummeted ever deeper into the red since 2009.

Given this, it is hoped that some individual small box electronics retailers might be lucky enough to survive.

Bill Via, a South Carolina owner of a RadioShack franchise, thinks that at least his independently owned business Hurricane Electronics would survive such a devastation. Via is fortunate in that the non-compete stipulations in his RadioShack franchise contract is looser than many other franchise systems. It allows his company to expand into other types of electronic retailing services. Hurricane also sells car stereo installation and computer repair services. "If something happened and RadioShack didn't reorganize and pull up their business, we would still have all the other businesses we operate under this roof. We just wouldn't be buying merchandise from (RadioShack) anymore," said Via to Charleston's Post & Courier.

Yesterday's press release disclosed the chain's franchised stores are down to 900. That is down nearly 200 franchises from its financial filing at the end of 2012, when the chain disclosed it had 1,091 franchised outlets.

What happened to the brand?

Neil Cavuto of Fox Business News asks what happened to the iconic electronics chain and why has it struggled. Was online ordering the disruptive technology that made RadioShack's brick and mortar stores largely irrelevant, even a handicap, in the marketplace? Or, was it the radio in the RadioShack name that showed it was just too outdated? He concludes that although the chain was praised by experts for its stand-out customer service, the problem was "the customers this iconic brand was serving, was steadily shrinking." Cavuto concludes that the lesson for others from RadioShack may be that "answering your customers questions is one thing, but giving them a convincing reason to come into your store in the first place – well, that's quite another thing."

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About Don Sniegowski

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Don Sniegowski is editor of Blue MauMau, the daily news journal for franchise & small business owners. Call him at +1 (270) 321-1268, tweet @bluemaumau or email don@bluemaumau.org.