RadioShack Goes Bust, Sprint Moves in for the Kill

One retailer's misfortune is another retailer's fortune. Why, you ask? Read on.

By Keith Loria, Contributing Editor

Photo: RetailByRyan, flickr
Photo: RetailByRyan, flickr

RadioShack is filing for Chapter 11 bankruptcy and plans to close nearly 2,400 stores in the coming year with Sprint and General Wireless Inc., agreeing in principle to allow Sprint to expand its branded store distribution by approximately 1,750 stores thanks to the sale of a portion of RadioShack’s assets and assignment of certain leases to General Wireless.

“Investors and owners are unlikely to recover delinquent rent and unpaid rent in bankruptcy. Landlords will be affected as stores not included in the proposed Sprint deal will likely close,” Michael Lagazo, senior advisor, Retail, with commercial real estate advisor Sperry Van Ness, told Commercial Property Executive. “Small, privately held landlords will be affected acutely by the closures, legal complexity, and the uncertainty in RadioShack’s future. Smaller retail properties have less tenant diversity in their portfolios and limited capital available to mitigate the vacancy expenses.”

RadioShack currently has 4,291 stores in the U.S., along with 274 in Mexico and 1,000 dealer franchise stores in 25 countries. According to court documentation, RadioShack plans to close at least 1,784 stores by March 31 in three groups or tranches. Store closing sale documents indicate that the first tranche of closures includes 162 stores to be closed by Feb. 17. The second tranche includes 986 stores set to close by Feb. 28. The final tranche includes 636 stores, scheduled to be closed by March 31.

“Markets with stagnant vacancy rates, fewer retail tenants, and slow job creation or wage growth will have an especially difficult time absorbing the loss of income,” Lagazo said. “Markets like New York, California, and Florida will have dozens of vacant spaces available.”

Once approved by bankruptcy court, Sprint and General Wireless will establish co-branded stores that will sell mobile devices across Sprint’s brand portfolio as well as RadioShack products, services and accessories.

According to Lagazo, brick and mortar stores may reconsider site selection requirements and the number of stores required in order to access a trade area.

“RadioShack has the highest number of stores of previous retailers that have filed for bankruptcy,” he said. “Blockbuster shuttered approximately 3,300 stores after filing for bankruptcy in 2010. Dish Network closed the remaining 500 stores through 2012. Kmart announced 131 store closures out of 2,100 stores in its 2002 Chapter 11 bankruptcy filing. As profit is diminished from products, which become commodities, margins implode under high occupancy costs.”

Sprint currently has more than 1,100 company-owned retail stores, which would more than double to more than 2,300 if the transaction is approved. The deal will call for Sprint effectively operating its store within a RadioShack store, occupying approximately one third of the retail space of each location.

“We’ve proven that our products and new offers drive traffic to stores, and this agreement would allow Sprint to grow branded distribution quickly and cost-effectively in prime locations,” Marcelo Claure, Sprint’s CEO, said in a company statement. “Sprint and RadioShack expect to benefit from operational efficiencies and by cross-marketing to each other’s customers.”

The stores will be co-branded with Sprint being the primary brand on storefronts and in marketing materials.