NEW YORK, Feb 7 — Yes, RadioShack filed for bankruptcy in a move that has been long time coming. No, that doesn’t mean that the RadioShack brand will be swept from the great American corporate landscape. In fact, more than 1,000 franchised RadioShack locations will be virtually untouched by the grim news for the company, selling the same old batteries and gadgets as before.
The restructuring plan would keep up to 1,750 RadioShack- controlled stores open under Sprint’s ownership.
The phone carrier gets the right to use 600 square feet of the RadioShack locations as “stores-within-stores” to show off Sprint-branded phones and other products, and Sprint would be the dominant brand featured on the signs on the outside of these stores and advertisements.
RadioShack will still get a lesser piece of signage. Sprint, which has emphasized its need for new stores, will get to cherry-pick the most attractive locations.
The rest of the 4,000 or so stores that RadioShack owns would be closed. But even at a fraction of its former footprint, a 1,750-store count for combination RadioShack-Sprint stores would be about equal to Verizon’s retail empire or the number of outposts for popular fast-casual chain like Panera and Chipotle.
And there are still more than 1,000 RadioShack locations owned by franchisees in the U.S. and 24 other countries around the world.
RadioShack says that the franchise stores aren’t part of the deal with Sprint.
According to franchise agreements, these stores have a legal right to operate under the RadioShack brand for a certain amount of time—franchises offered in 2013 were set at 10 years—in exchange for handing over share of the revenue they produce and complying with various rules.
Franchisees don’t necessarily have to sit around and accept the demise of their parent companies.
In 2004, the Ground Round burger chain seemed doomed when its parent company filed for bankruptcy and closed the 59 restaurants it owned. But the independent owners of other Ground Round locations banded together and bought the company the following year.
The chain survives as a cooperative operated by its franchisees. Bennigan’s, a chain of Irish pubs, went broke in 2008. Dozens of its locations refused to close, though, and are still serving Guinness mixed with Blue Moon (the Black and Blue) and homemade cottage pie.
Both businesses are a fraction of their former size, of course, and yet their names live on.
There was a lot of pressure to never again say the word ‘Radio’
RadioShack has long had a strained relationship with its name. Claire Babrowski worked as an executive for the company in 2005 and 2006.
“There was a lot of pressure to never again say the word ‘Radio’,” she says.
“And there definitely was a lot of strife around whether or not the word ‘Shack’ was something that people would want to hear.”
The company never broke from its identity, although it did go through a period where it tried out a (presumably) hipper-sounded moniker: The Shack.
As the company reaches its final days, it could turn against its own name once again and decide to put a stop to a network of entrepreneurial storeowners operating under its brand. In that case, RadioShack could void franchise agreements as part of the bankruptcy.
But it’s not immediately clear that the company will try to do that. Joe Caruso, a franchise industry consultant, thinks that RadioShack could likely find a buyer for the franchise agreements.
Companies that franchise their brands generally set up segments within their corporate structure to handle franchise revenue that are insulated from whatever financial chaos may beset the wider organization.
“You would do it that way for this specific reason,” Caruso says, “so it could be treated as a separate asset.”
Lawrence Perkins, a restructuring expert who runs the consulting firm Sierra Constellation Partners, doubts that Sprint would agree to let this happen.
RadioShack’s franchised stores are likely to be in less-profitable locations than those the company owns directly, Perkins says, and he questions whether the franchise deals are likely to be lucrative for RadioShack or an unnamed successor. In addition, having RadioShack stores suffering on their own could undermine Sprint’s co-branded stores.
Perkins thinks the phone carrier’s job is going to be hard enough without any added complications. “Integrating 1,600 stores that have been largely neglected for the last decade is ambitious,” he says.
“As an operator that would make me nervous.” — Bloomberg
