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Earlier this week, it was reported that the last remaining Toys “R” Us (TRU) stores in the U.S. will close by Friday. That news, however, has apparently not ended the belief that the chain, which fell under the weight of $5 billion in debt, can be resurrected in some form and return as a force in the toy business.
Former TRU CEO Jerry Storch has been working with other investors including Fairfax Financial Holdings, which acquired the toy retailer’s Canadian operations, to put together a deal to keep the business operating, according to Bloomberg.
The odds of pulling off such a deal appear difficult at best. Mr. Storch’s group would first have to secure the rights to TRU’s intellectual property when it is auctioned off in about a month’s time. Acquiring the chain’s former stores, if that is part of the plan, would be handled separately.
Even if the group put together by Mr. Storch proved successful on the intellectual property and real estate fronts, the matter of putting together an organization and acquiring merchandise in time for Christmas, the most important selling season for toy retailers, seems a reach.
Many believe that TRU’s fate was sealed when the chain was acquired in a $6.6 billion leveraged buyout in 2005 by Vornado Realty Trust, Bain Capital and KKR & Co. The need to pay down debt stripped the chain from the capital it needed to establish its stores as toy shopping destinations. It also kept the company from making the investments needed to link its online and store operations in the face of intense competition from Amazon.com, Target, Walmart and others.
If anyone is to bring TRU back, Mr. Storch appears to be as good a candidate as there is. As Bloomberg reports, he was installed as CEO after the chain was taken private. During his time at TRU, the chain managed at one point to post earnings before interest, taxes, depreciation and amortization (EBITDA) of $1 billion. TRU was unable to match that earning performance following his departure.
Mr. Storch’s plan, Bloomberg reports, involves several hundred stores that would combine toys and baby brands. As CEO of TRU, Mr. Storch began testing a similar concept, and there were still 200 “hybrid” stores operating when the chain began to shutter its locations.