Toys 'R' Us, the big box toy retailer struggling with $5 billion in debt and intense online competition, has filed for bankruptcy protection ahead of the key holiday shopping season and says its stores will remain open for business as usual.
Toys ‘R’ Us, the big box toy retailer struggling with $5 billion in debt and intense online competition, has filed for bankruptcy protection ahead of the key holiday shopping season and says its stores will remain open for business as usual. The company based in Wayne, New Jersey, said late yesterday that it was voluntarily seeking relief through the US Bankruptcy Court for the Eastern District of Virginia in Richmond and that its Canadian subsidiary would be seeking similar protection through a Canadian court in Ontario as it seeks to reorganise. Toys ‘R’ Us said court-supervised proceedings will help restructure its debts and set the stage for long-term growth. Its announcement said separate operations outside the US and Canada are not part of the filings. And it emphasised that its stores worldwide will remain open and that it will continue to work with suppliers and sell merchandise. “The company’s approximately 1,600 Toys ‘R’ Us and Babies ‘R’ Us stores around the world the vast majority of which are profitable are continuing to operate as usual,” the company statement said.
“Customers can also continue to shop for the toy and baby products they are looking for online.” Dave Brandon, company chairman and CEO, said that the court filing provides a path for the company and its investors to work with its debtholders and other creditors to work on restructuring the debt beleaguering the pioneering toy retailer. “Together with our investors our objective is to work with our debtholders and other creditors to restructure the USD 5 billion of long-term debt on our balance sheet, which will provide us with greater financial flexibility to invest in our business … and strengthen our competitive position in an increasingly challenging and rapidly changing retail marketplace worldwide,” he said in the announcement.
The move comes at a critical time ahead of the peak holiday shopping season that is crucial to retailers’ bottom lines. Brandon expressed confidence in the looming reorganisation, vowing that the iconic Toys ‘R’ Us and Babies ‘R’ Us brands known to shoppers for generations would continue on. Toys ‘R’ Us, a major force in toy retailing in the 1980s and early 1990s, started losing shoppers to discounters like Walmart and Target and then to Amazon. The company has struggled with debt since private-equity firms Bain Capital, KKR & Co and Vornado Realty Trust took it private in a USD 6.6 billion leveraged buyout in 2005. The plan had been to take the company public, but that never happened because of its weak financial performance.
With such debt levels, Toys ‘R’ Us has not had the financial flexibility to invest in its business. Analysts say Toys ‘R’ Us hasn’t been aggressive about building its online business, and has let those sales migrate to rivals. And they say the company should have also thought of new ways to attract more customers in its stores, such as hosting birthday parties. A Toys ‘R’ Us bankruptcy filing would join a list of those from other major retailers since the beginning of the year including shoe chain Payless Shoe Source, children’s clothing chain Gymboree Corp and the True Religion jean brand as people shop less in stores and more online.
While toy sales overall have held up fairly well, they are shifting toward discounters and online companies. US toy sales rose 6 per cent last year on top of a 7 per cent increase in the prior year, says NPD Group Inc, a market research firm. That was the biggest increase since 1999 and was fueled by several blockbuster movies. But for the first half of 2017, sales rose 3 per cent. That puts more pressure on the later part of the year, when most toy sales occur, for the industry to meet NPD’s estimate for a 4.5 per cent annual increase. Lego is laying off 1,400 workers after saying profits and sales dropped in the first half. And the nation’s two largest toy makers, Mattel and Hasbro, reported disappointing second- quarter results.