The apparent death of RadioShack and the overdue restructuring of hhgregg has cast a pall on the retail scene and served as a warning shot to other CE retailers considering rapid expansion as a path to growth. For others, opportunity looms (see AVB).
Under hhgregg CEO Robert Riesbeck, who took over in February 2016, the chain turned its focus to the major appliances category, particularly the high end, and appliance sales soared. But the chain saw consumer electronics sales sink by 38.6 percent in its most recent quarter and same-store sales dropped by 22.2 percent. Losses in the quarter were $58.3 million.
“We’ve given it a valiant effort over the past 12 months,” said Riesbeck. “We have conducted an extensive review of alternatives and believe pursuing a restructuring through Chapter 11 is the best path forward to ensure hhgregg’s long-term success. We are thankful for the continued support of our dedicated employees, valued customers, vendors and business partners as we navigate this process, and look forward to becoming a stronger company in the coming months.”
“We have streamlined our store footprint and remain fully committed to the 132 remaining stores, and the associates supporting those locations. We have solidified our senior management team and everyone is dedicated to restructuring our business model for future profitability and growth,” Riesbeck said. “Through these strategic steps, we plan to come out of this debt free and more agile as we serve our valued customers and vendor partners, and continue to be a dominant force in appliances, electronics and home furnishings.”
The announcement was not a surprise to the rest of the industry, but the size of hhgregg’s void would be significant. Best Buy CEO Hubert Joly addressed the subject in an earnings call last month. “We’re not going to mention the name of this particular retailer,” Joly said, [but] “If they do file and close their stores, which we have no information about, then you can assume that the $1 billion would be shared across a variety of players.”
“Nobody wants to see another dealer go out of the market; it’s not good for anyone,” commented Dave Workman, president/CEO, of ProSource.”You wish them the best but there aren’t really any examples of a chain that size restructuring it’s operations and returning to profitability.”
Asked why he though hhgregg ultimately failed, Workman said, “It’s the classic reason, they grew too quickly” and stretched their resources too thin. “To some extent the vendors funded the expansion to help replace the business they lost when Circuit City went under.”
Meantime, Radioshack president/CEO Dene Rogers said this chain’s problems stemmed from unexpectedly weak sales of Sprint mobile subscriptions, which cratered during the fourth quarter of 2016. Owner General Wireless was counting on its share of commission payments, which were to kick in after Sprint realized its first $60 million from the in-store shops — projected to be achieved within a 12-month timeframe.
But the carrier never reached that threshold, and absent the commission payments GWO was unable to raise new capital, cover its liabilities or pay its debt obligations, Rogers said. With Sprint unwilling to renegotiate the contract, General Wireless had no choice but to file.
In a statement, Sprint omnichannel sales president Kevin Crull described the bankruptcy and store closings as “an unfortunate development for this storied retailer,” but said it would have no material impact on its overall sales results.
He said the carrier will convert several hundred RadioShack locations to carrier-owned Sprint stores, and will move its signage, displays and inventory from the remaining 1,000 or so co-branded RadioShack stores to other Sprint-owned locations.
The bankruptcy may finally spell the end of the nearly 100-year-old gadget chain, which was named after the radio cabin aboard ships and has become an anachronism in the age of e-commerce.