RadioShack Faces Possibility of Bankruptcy as Losses Continue

OLYMPUS DIGITAL CAMERADeclining sales, capital losses and closing stores have taken their toll on electronics retailer RadioShack. According to a May 15 Motley Fool article, RadioShack has lost more than $300 million since the end of 2012 and has accrued $613 million in debt.

Because of its massive outstanding debt, RadioShack’s creditors refused to let the company close as many of its retail locations as it wanted to this month, according to USA Today. RadioShack had planned to close 1,100 stores, but its lenders will only permit them to close 200 stores each year, further worsening RadioShack’s monetary losses.

“Apparently the creditors believe that their chances of being repaid are greater if there are a greater number of stores open,” Michael Pachter, an analyst who covers RadioShack for Wedbush Securities, told USA Today. “RadioShack management believes the company will be healthier with fewer stores. So they don’t see things the same way.”

The Motley Fool article reported that soon, RadioShack will be unable to afford the interest payments on its loans because of how much money it continues to lose. According to USA Today, the company lost $191.4 million in the fourth quarter of last year alone. Sales at RadioShack’s 4,300 U.S. locations show no sign of turning around, either.

This raises the question: is bankruptcy an inevitable truth that RadioShack will have to face soon?

As more consumers turn to online electronics retailers and big-box stores like Best Buy, RadioShack will have less chance to create a turnaround. RadioShack has almost no online retail presence, The Motley Fool reported. Many analysts say there’s simply no reason for consumers to go to a RadioShack store anymore.

Without the ability to close stores that simply aren’t selling products, it seems as if bankruptcy is the only way for RadioShack to have any chance of recovery.