Toys R Us lodges for insolvency ahead of holiday season

Andrew Cummings
September 20, 2017

With its spacious, high-ceiling stores that hold thousands of items, Toys R Us pioneered the big-box format for toy sales and once was the go-to destination for people shopping for toys, baby products and birthday gifts.

Analysts said buyers have moved online over the years, as well as choosing home delivery, while discounters like Wal-Mart and Target have captured market share.

"We are confident that this process will enable us to leverage Toys "R" Us' existing strengths to succeed".

Toys "R" Us said the "vast majority" of its approximately 1,600 Toys "R" Us and Babies "R" Us stores around the world and its web portals continue to operate as usual.

The group has 110 stores in the United Kingdom, including one at the Copdock A12/A14 interchange on the edge of Ipswich, and more than 2,500 staff but it stressed that its European arm is a separate legal entity to the America business.

Ten days later, almost all the company's vendors refused to ship products without cash in advance, forcing Toys "R" Us to scramble to raise $1 billion for its suppliers, according to court filings.

The Chapter 11 filing by the biggest USA toy store chain, to restructure $5 billion of long-term debt, is among the largest ever by a specialty retailer and casts doubt over the future of the company's 64,000 employees and almost 1,600 stores, which remain open.

The company's filing came in U.S. Bankruptcy Court for the Eastern District of Virginia in Richmond.

So what's to blame for the decline of retail stores like Toys 'R Us?

Toys R Us was a major force in toy retailing in the 1980s and early 1990s, and was one of the first of the "category killers" - retailers that focused on one merchandising category and offered low prices.

More than a dozen significant retail chains have filed for bankruptcy this year.

The filing, meant to restructure five billion dollars of long-term debt, is one of the largest ever by a specialty retailer and casts doubt over the future of the company's 64,000 employees and almost 1,600 stores, which remain open as of now.

Toys "R" Us said it expects to survive.

Toys R Us' filing was not entirely surprising; there had been rumors for weeks that it might seek bankruptcy protection, and its top executives had warned in recent months that the chain was struggling.

He also noted that Amazon, Wal-Mart and other online vendors were offering free shipping in many situations and that standard two-day shipping was becoming commonplace, resulting in "a very hard quarter" for Toys R Us.

Toys "R" Us is saddled with debt from a $6.6-billion buyout in 2005, led by KKR & Co LP and Bain Capital LP, together with real estate investment trust Vornado Realty Trust. For most multinational toy suppliers, the Toys R Us business roughly accounted for 10 percent of total sales, she said.

GlobalData Retail estimates that about 13.7 percent of toy sales were made online in 2016, up from 6.5 percent five years ago. That was the biggest increase since 1999 and was fuelled by several blockbuster movies.

Meanwhile, children are increasingly gravitating towards digital toys rather than physical trinkets, he added.

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