Electronics retailer RadioShack could file for bankruptcy soon after its shares lost nearly a third of their value, brokerage Wedbush Securities reported Tuesday, according to Reuters.
This would make the stock worthless by the end of the year. The stock fell as much as 20% to 76 cents per share on Wednesday, adding to a 23% plunge.
“Our price target reflects our expectation that creditors will force a reorganization and wipe out RadioShack’s equity,” Wedbush analyst Michael Pachter told Reuters.
RadioShack reported its ninth straight quarterly loss in June and is struggling to sustain its turnaround efforts.
Reuters reported that Pachter, who previously had a price target of $1, said he was lowering his price target as declining sales of consumer electronics and falling margins were likely to force the company to seek bankruptcy protection to turn around its business.
RadioShack has made attempts to close 1,100 stores this year, but its lenders did not agree with its plans, forcing the company to close 200 stores a year.
“It’s just a further example of cannibalization of brick-and-mortar stores as a result of increased market share going to internet retailers and ecommerce,” said Abe Garver, managing director of BG Strategic Advisors and author of the Yahoo! Finance blog Moving the e-Markets told Multichannel Merchant. “It’s a casualty.”
Garver said RadioShack needs to play to its strengths versus many ecommerce companies – its 4,250 stores.
“If you are Amazon, you need to increase your ability to distribute orders in dense markets,” said Garver. “Since RadioShack is in all these places, Amazon could come in opportunistically with this distress seller and acquire its physical store assets, which is important in the new ecosystem.”
Garver said it would be less expensive for Amazon or another strategic acquirer to buy versus build.
“Overnight Amazon could have 4,250 consumer-facing stores,” Garver said. “If they are having to collect sales tax anyway, why not have a small physical store where you can let customers come and pick up small Amazon Prime packages?”
Stuart Rose, managing director of Tully & Holland Inc., said there aren’t any Radio Shack products available in stores that couldn’t be purchased online. For example, he said, RadioShack used to be a major seller of mobile phones, audio and GPS systems from its stores, but most of the business has shifted online.
“They have been struggling for years [with their store locations] and weren’t able to pull off anything dramatic,” said Rose.
Rose said he didn’t think RadioShack could survive while carrying anywhere near its current level of physical locations, or as a pure-play ecommerce operation.
“I don’t know how much online business they would do if their stores went out-of-business,” said Rose. “I would see someone buying the brand and re-launching it in a much more scaled-down version.”
Rose said he could see “vulture investors” and others who pursue distressed-businesses as possible candidates to buy out RadioShack. He added these types of entities have been queuing up for some time as the eventual demise of the franchise has been widely predicted.