RadioShack stumbles down road taken by many failed U.S. retailers

Fri Sep 12, 2014 3:47pm EDT
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By Tom Hals and Nick Brown

(Reuters) - RadioShack Corp RSH.N confronts an uncomfortable fact as it considers filing for bankruptcy to give it time to overhaul its 4,400 electronics stores: Retailers rarely emerge from bankruptcy. They often liquidate and go out of business.

Founded in 1921, the Fort Worth, Texas-based RadioShack said on Thursday that it may file for Chapter 11 bankruptcy protection in the United States, potentially adding itself to the list of non-food retail chains that have disappeared from American strip malls and shopping centers in recent years.

Circuit City Stores, Borders Group, Filene's Basement, Linens 'n' Things, Coldwater Creek and plenty of smaller chains have gone out of business after filing for Chapter 11.

It was not always like this. Chapter 11 was once a sanctuary for famed retailers from Macy's to Kmart. They would predictably pile up cash over the year-end holidays, file for bankruptcy in January and spend a year or more tinkering with business plans to meet new challenges.

Then in 2005, Congress reworked the U.S. Bankruptcy Code. The new law set a deadline of 210 days, or roughly seven months, by which time a retailer had to commit to accepting a lease, or rejecting it and vacating a property.

That changed everything.

In reality, store chains do not even have seven months. Lenders will typically only offer companies about three or four months of financing during bankruptcy to ensure that, if things do not work out, there is enough time to conduct a going-out-of-business sale.

"In the old days you could take your time to assemble a new plan for stores," said Peter Schaeffer, a turnaround specialist with GlassRatner Advisory & Capital Group in New York. "Whereas today you really don't have that time."   Continued...

A sign for a RadioShack store is seen in the Brighton Beach section of the Brooklyn borough in New York March 4, 2014. 
REUTERS/Shannon Stapleton