All

Christmas Without Toys “R” Us. Who Will Move in to Fill the Space Under Your Tree?

Jason Alden | Bloomberg | Getty Images

Photo Credit: Jason Alden, Bloomberg/Getty Images- Customers pass an advertisement for a ‘Closing Down’ sale at a Toys ‘R’ Us Inc. retail store.

Toys “R” Us Files for Bankruptcy, Crippled by Competition and Debt. Who will move in to fill the space under your tree?

By Saurav Bhandary   │Published: November 23, 2018

Toys “R” Us, one of the world’s largest toy store chains, filed for Chapter 11 bankruptcy protection in September 2017 after failing to find a buyer or reach a deal to restructure billions in debt (Corkery, 2017). Toys “R” Us cited $7.9 billion in debt against $6.6 billion in assets when it filed for bankruptcy in 2017.

If there is one thing that has been rapidly growing over the last decade, it is online shopping. Toys “R” Us, which also owns Babies “R” Us, has struggled to compete with Amazon and stores like Walmart. According to Macquarie Research, Amazon accounted for 51% of all e-commerce growth in 2015, compared to 36% in 2014 and 33% in 2013. Now more than 50% of all online sales in the US every year go through Amazon alone and it continues to grow.

When the private equity firm Bain Capital and two partners, Kohlberg Kravis Roberts (KKR) and Vornado Realty Trust, purchased Toys “R” Us for $6 billion in 2005, it already had a debt load of $1.86 billion before it was bought out (Associated Press, 2005).

In March 2018, Toys “R” Us announced that it was liquidating all of its U.S. stores as part of its bankruptcy process. In its court filing, the company laid the blame at the feet of Amazon, Walmart, and Target, saying it “could not compete” when they priced toys so low (Bomey, 2018).

From 2012 to 2017, the toy industry declined every year at a rate of 3.1 percent, according to data service IBIS World (Hirsch, 2018).

The company that began as a single DC-based store in 1948 eventually became a symbol of American retail with more than 1,600 stores worldwide. It was known for its endless supply of toys and electronics.

Then the dot-com bubble arrived. Other company like EToys, the internet toys start-up founded in 1997, went public two years later. In 2007, Bed Bath & Beyond Inc. (BBBY.O) acquired buybuy Baby, a privately-held retailer of infant and toddler merchandise, for about $67 million in cash (Stempel & Bishopric, 2007).

Amazon, Walmart, and Target are leading the toy race this holiday season

Amazon, Walmart, and Target are leading the toy race this holiday season. Source: Business Insider Intelligence (Greg Magana, Nov. 19, 2018, 10:42 AM)

The company had hoped to survive the debt restructuring process and emerge with a new healthier business model but it failed. However, it is not dead- not just yet.

In October 2018, the hedge funds that own Toys “R” Us assets filed paperwork to “hang on to the Toys “R” Us and Babies “R” Us brand names, web domains and mascot Geoffrey the Giraffe.” On November 2, 2018, Kroger announced it would partner with Geoffrey, the subsidiary for Toys “R” Us intellectual property, to bring pop-up toy shops to 600 of its stores across America throughout the holidays (The Kroger Co., 2018).

In today’s digital age, online shopping is more accessible now than it has ever been and consumers continue to increasingly shift spending online. All these changes may not tell a whole lot, but it certainly does begin to paint a picture of changing dynamic of the e-commerce businesses—not just in the USA but also around the world.

Chronology of Events:


References

Associated Press. (2005, March 18). Toys R Us Agrees to Sale of Entire Firm for $6.6 Billion. Retrieved from http://articles.latimes.com/2005/mar/18/business/fi-toys18

Bomey, N. (2018, March 15). Toys R Us blames Amazon, Target, Walmart for death blow. Retrieved from https://www.usatoday.com/story/money/2018/03/15/toys-r-us-liquidation-amazon-target-walmart/427209002

Corkery, M. (2017, September 19). Toys ‘R’ Us Files for Bankruptcy, Crippled by Competition and Debt. Retrieved from https://www.nytimes.com/2017/09/19/business/dealbook/toys-r-us-bankruptcy.html

Covert, B. (2018, July). The Demise of Toys ‘R’ Us Is a Warning. Retrieved from https://www.theatlantic.com/magazine/archive/2018/07/toys-r-us-bankruptcy-private-equity/561758

Hirsch, L. (2017, September 19). Toys R Us files for Chapter 11 bankruptcy protection. Retrieved from https://www.cnbc.com/2017/09/18/toys-r-us-files-for-chapter-11-bankruptcy.html

Hirsch, L. (2018, March 16). Toys R Us built a kingdom and the world’s biggest toy store. On Friday, its stores close for good. Retrieved from https://www.cnbc.com/2019/01/26/toys-r-us-built-a-kingdom-and-the-worlds-biggest-toy-store-then-they-lost-it.html

Lieber, C. (2018, October 03). Why bankrupt Toys R Us might not be dead after all. Retrieved from https://www.vox.com/the-goods/2018/10/3/17932344/toys-r-us-liquidation-coming-back

PR Newswire. (2017, April 12). Toys”R”Us, Inc. Reports Results for the Full Year and Fourth Quarter of Fiscal 2016. Retrieved from https://www.prnewswire.com/news-releases/toysrus-inc-reports-results-for-the-full-year-and-fourth-quarter-of-fiscal-2016-300438484.html

PR Newswire. (2017, September 25). Toys”R”Us, Inc. Closes $3.1 Billion Financing Facilities. Retrieved from https://www.prnewswire.com/news-releases/toysrus-inc-closes-31-billion-financing-facilities-300525360.html

Rey, J. D. (2015, December 23). Amazon’s Complete Retail Domination in One Tiny Chart. Recode. Retrieved from https://www.recode.net/2015/12/23/11621690/amazons-complete-retail-domination-in-one-tiny-chart

Siegel, R. (2018, November 20). $20 million fund set aside for laid-off Toys R Us workers. Retrieved from https://www.washingtonpost.com/business/2018/11/20/million-fund-set-aside-laid-off-toys-r-us-workers/

Stempel, J. (2007, March 22). Bed Bath & Beyond buys buybuy Baby for $67 mln (C. Bishopric, Ed.). Retrieved from https://www.reuters.com/article/idUSWNAS477120070322

Telford, T. (2018, November 22). Toys R Us comes crawling back, just in time for the holidays. Retrieved from https://www.washingtonpost.com/business/2018/11/22/toys-r-us-comes-crawling-back-just-time-holidays

The Kroger Co. (2018, November 2). Press Release. Retrieved from http://ir.kroger.com/file/Index?KeyFile=395615068

Toys “R” Us, Inc. (2017, September 18). TOYS”R”US, INC. COMMENCES COURT-SUPERVISED PROCESSES TO IMPLEMENT FINANCIAL RESTRUCTURING. Retrieved from https://www.toysrusinc.com/press/toysrus-inc-commences-court-supervised-processes-to-implement-financial-restructuring

Toys ”R” Us, Inc. (2017, September 25). TOYS”R”US, INC. CLOSES $3.1 BILLION OF FINANCING FACILITIES. Retrieved from https://www.toysrusinc.com/press/toysrus-inc-closes-31-billion-financing-facilities

Toys “R” Us, Inc. (2017, December 19). TOYS”R”US, INC. REPORTS RESULTS FOR THIRD QUARTER 2017. Retrieved from https://www.toysrusinc.com/press/toysrus-inc-reports-results-for-third-quarter-2017

Toy Industry Association, Inc. (n.d.). Toys”R”Us Bankruptcy Information. Retrieved from https://www.toyassociation.org/ta/resources/credit-interchange-program/tru-bankruptcy-information/toys/resources/bankruptcy-home.aspx