RadioShack Begins Liquidation, Franchised Stores Safe…For Now…

RadioShack is preparing to begin liquidation sales, but not on franchised stores. The Wall Street Journal is reporting that the retail chain is beginning liquidation sales in 1,700 of its stores in an attempt to cut down its size after filing for Chapter 11 bankruptcy on Thursday.

During the bankruptcy filing hearing, RadioShack representatives told judge Brendan Shannon that they would like to remain accountable for the cash accumulated during the liquidation sale, since customers would be looking for deals and creditors would be looking for payments. Judge Shannon authorized the liquidation sales to start this weekend.

RadioShack’s cash control is only on an interim basis, per Judge Shannon, but Shannon did say that no other court orders would be granted until he hears from other creditors. As of now, bondholders who are owed $330 million, trade creditors who are owed $124 million, and landlords who are owed $30 million would be given an opportunity to present their case in court before he issues any other court order.

Soon, RadioShack will go back into bankruptcy court to debate if the company needs to sign up for more than $285 million in Chapter 11 funding. Cerberus Capital Management, a lender in such situations, is calling the funding pricey and unnecessary.

As it start the bankruptcy proceedings, Cerberus claims, RadioShack has about $44 million in cash in its coffers. At the end of February, RadioShack will have in excess of $118 million, making the Chapter 11 funding unnecessary, according to Cerebus.

Bloomberg is reporting that this doesn’t necessarily spell the end for the longtime technical gadgets and doodads seller. Indeed, over 1,000 franchised stores are not part of the bankruptcy discussion, at least not yet. Also, there will be about 1,700 RadioShack stores that Sprint will take over in an interesting deal.

Sprint will be allowed to cherry-pick which RadioShacks they want to take over. Sprint will then convert the RadioShack stores, with the ability to use up to 600 square feet for Sprint phones, services and products, kind of a “store-within-a-store” deal. RadioShack will get to use the remainder of the store, but Sprint will have the lead on signage within the store.

Once those 1,700 stores are chosen, the remaining 4,000 RadioShack stores will close. However, the over 1,000 franchised RadioShack stores, located in the U.S. and 24 countries worldwide, have deals already in place. Most franchisees have a deal in which they can use the RadioShack name for up to 10 years as long as they comply with revenue sharing agreements and other rules compliances are adhered to.

The change is coming. RadioShack will not be the store it once was, but it’s not going away. Not just yet.

[Image courtesy of totaltheater.com]