Toys “R” Us Inc., the once-dominant specialty retailer and ultimate toyland for a generation of post-war baby boomers, filed for bankruptcy thanks to a crushing debt load from a previous buyout and relentless competition from warehouse and online retailers.
The bankruptcy filing is the latest blow to a brick-and-mortar retail industry reeling from store closures, sluggish mall traffic and the gravitational pull of Amazon.com Inc., which has revolutionized the way people consume with affordable online offerings and global home delivery service.
The bankruptcy filing by the company also may have global implications, especially for Chinese toy manufacturers. Some 38 percent of the company’s revenue came from overseas markets in the latest fiscal year.
The company listed debt and assets of more than USD1 billion each in Chapter 11 documents submitted Monday at the U.S. Bankruptcy Court in Richmond, Virginia. Prior to filing, the chain secured more than $3 billion in financing from lenders including a JPMorgan Chase & Co.-led bank syndicate and certain existing lenders to fund operations while it restructures, according to a company statement. The funding is subject to court approval.
The company didn’t announce plans to close stores, and said its locations across the globe would continue normal operations. “Like any retailer, decisions about any future store closings – and openings – will continue to be made based on what makes the best sense for the business,” Michael Freitag, a spokesman for Toys “R” Us, said in an email.
Much of the toy merchant’s debt is the legacy of a $7.5 billion leveraged buyout in 2005 in which Bain Capital, KKR & Co. and Vornado Realty Trust loaded the company with debt to take it private. Since then, the Wayne, New Jersey-based chain has struggled to dig itself out.
Chief Executive Officer David Brandon took over Toys “R” Us in 2015 and sought to make shopping there a more enjoyable experience. Last year, he set out a vision of kids “dragging their parents to our stores because they want to see what’s going on.”
The retailer introduced the “Hot Toy Finder,” which tells customers exactly where in their local store to find the items featured on its “Holiday Hot Toy List.” The chain, which has provided the annual list of the 50 hottest toys for 20 years, also offered price matching and free layaway.
While Brandon made some progress reducing liabilities, he ultimately was unable to resuscitate the closely held chain’s fortunes. The company reported a net loss of $164 million in the quarter ended April 29, compared to $126 million for the same period in the prior year. It hasn’t shown an annual profit since 2013.
When reports surfaced recently that Toys “R” Us was weighing a bankruptcy filing, Chinese toy scooter maker Pinghu Mijia Child Product Co. put all of the retailer’s orders on hold, fearing it wouldn’t get paid, according to sales manager Justin Yu. The toy retailer represents about 10 to 20 percent of the Chinese supplier’s sales.
“We were shocked to hear the news last week because their orders to us have been rising every year, so we did not know they were in trouble,” Yu said. “They’re a major buyer and I would say that the majority of toy makers in China would have some contracts with them.”
Li Jiewei, a spokesman with the China Toy and Juvenile Products Association, thinks demand for toys remains robust, regardless of the problems at Toys “R” Us. “Total toy exports from China have been growing every year and growth remains strong so we don’t see it as an industry problem,” he said.
Charles Lazarus opened Children’s Bargain Town, a baby-furniture store, in Washington in 1948, according to the Toys “R” Us website. He added toys two years later and opened the first Toys “R” Us, modeled after self-service supermarkets, in 1957. Lazarus stepped down as chairman and CEO in 1994. Two years later, the first Babies “R” Us opened.
The company sells toy and baby merchandise in about 1,600 Toys “R” Us and Babies “R” Us locations worldwide and through websites including Toysrus.com and Babiesrus.com. Bloomberg
