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).
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:
- November 2, 2018: Kroger, America’s largest grocery retailer, announced a partnership to bring Geoffrey’s Toy Box exclusive brands to nearly 600 Kroger Family of Stores across America for the 2018 holiday season
- December 19, 2017: Toys “R” Us, Inc. Reports Results For Third Quarter 2017
- September 25, 2017: TRU Announces Closing on $3.1B Debtor-in-Possession Financing
- September 20, 2017: Toys R US Inc receives court approval of “first day” motions to support business operations
- September 18, 2017: TRU announced that the Company and certain of its U.S. subsidiaries and its Canadian subsidiary have voluntarily filed for relief under Chapter 11 of the Bankruptcy Code in the U.S. Bankruptcy Court
- September 9, 2017: News is released that TRU has hired a law firm to help restructure its roughly $400 million in debt due in 2018
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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
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