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Is this the end for specialty retailers?

Akiko Fujita

Electronics retailer RadioShack (RSH) reported dismal earnings for the third quarter Thursday, but vowed to aggressively cut costs to get the struggling company back on track.

Sales tumbled nearly 16% from a year ago, leading to a larger-than-expected net loss of $161 million. Same store sales declined 13.4%, adding to further speculation the company may be headed towards bankruptcy.

“The beginning of the end was a while ago,” said Senior Columnist Michael Santoli. “It does not seem, in the current form, in the current size, RadioShack can continue as a public company.”

RadioShack has long struggled to remain competitive against bigger rivals Best Buy and online shopping giant Amazon, and is on track to report its third consecutive annual loss. At least one creditor, Salus Capital Partners LLC, has accused the retailer of defaulting on a $250 million loan agreement to carry out its turnaround. 

Still, CEO Joseph Magnacca struck an optimistic tone, saying same store sales were up 35 percent over the three-day Thanksgiving holiday. He vowed to slash $400 million next year, by closing stores and lowering marketing expenses.

It is notable that our core retail efforts are working, even as our mobility category is still experiencing challenges," Magnacca said.

Other specialty retailers may be looking to avoid RadioShack’s fate, by joining forces with competitors. The Wall Street Journal reports activist investor Starboard Value, has acquired a 6% stake office supply retailer Staples. Starboard also raised its stake in Office Depot (ODP), from 8.6% to 10%, prompting speculation of a merger between the retailers.

"With Staples (SPLS), they’ve had great success online. It’s not as if they’re a novice to online commerce. They are actually one of the biggest out there in terms of selling their stuff online," says Santoli. "They are a survivor. It’s just a matter of whether the physical store base they have right now justifies itself at this point.”

Most speciality retailers, however, are approaching the light at the end of the tunnel.

“I think what we’re seeing here is this end game playing out with specialty retailers who just cannot compete in this Amazon world where price transparency is everywhere,” Santoli says. “They thrived in the 80s and 90s – now there’s just not enough businesses to go around.”

Radioshack Corporation - Quarterly EPS (BNRI) | FindTheBest

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