Toys ‘R’ Us files for bankruptcy, enters ‘new era’
Toys “R” Us announced yesterday that it has filed for Chapter 11 bankruptcy as the chain hopes that restructuring will allow it to manage its $5 billion debt load while positioning its business to compete against bigger and stronger competitors ranging from Amazon.com to Walmart.
While Toys “R” Us expects to close an undisclosed number of underperforming stores as part of its restructuring, it expects to keep most of its 1,600 stores open. The chain maintains that
“the vast majority” of its locations are profitable.
Toys “R” Us has received a commitment of over $3 billion in debtor-in-possession financing that it intends to use to improve its liquidity while maintaining operations. Chairman and CEO Dave Brandon said the company plans to restructure its long-term debt, which will give it the flexibility to invest in improving the customer experience in the chain’s stores and online.
Mr. Brandon called the action “the dawn of a new era at Toys “R” Us,” promising that the company will work with vendors to assure it has the right inventory in place for the upcoming holiday season.
The Wall Street Journal reports that Toys “R” Us is likely to receive vendor support as suppliers would suffer adverse effects if one of their largest retail customers were to fail. The two largest toy makers — Mattel and Hasbro — are owed nearly $200 million combined from Toys “R” Us, the paper reports.
- Toys “R” Us, Inc. Commences Court-Supervised Processes to Implement Financial Restructuring – Toys “R” Us, Inc.
- Toys ‘R’ Us, Once a Category Killer, Is Forced Into Bankruptcy – The Wall Street Journal
- Can toys raise J.C. Penney’s game? – RetailWire
- Toys ‘R’ Us mulls small, urban stores as part of turnaround – RetailWire
DISCUSSION QUESTIONS: Will Toys “R” Us be in a better position to compete following its restructuring under Chapter 11? What will the chain need to do to avoid losing any of its stakeholders — investors, lenders, vendors, associates and consumers — in the process?
Phil ChangRetail Influencer, Speaker and Consultant
Phil ChangRetail Influencer, Speaker and Consultant
Phil ChangRetail Influencer, Speaker and Consultant
Phil ChangRetail Influencer, Speaker and Consultant
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19 Comments on "Toys ‘R’ Us files for bankruptcy, enters ‘new era’"
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President/CEO, The Retail Doctor
Make no mistake though, the debt isn’t going away. And the structural problems are still in place as more and more Millennial moms buy toys off Craigslist and at dollar stores. Let’s not forget this is the company that couldn’t make FAO Schwartz work.
President and CEO, Stealing Share
It’s over for Toys “R” Us. The shopping habits of toy buyers have changed. No enhancement of the customer experience will change this. Chalk up a win for Walmart and Amazon.
A specialized superstore only exists when it can claim the largest selection in the category (Amazon wins), price (Walmart wins) and convenience (Walmart and Amazon win because you are not limited to purchases within the single category).
Specialized superstores are all in trouble for the same reasons. Think about Staples.
Retail Influencer, Speaker and Consultant
Toys “R” Us needs to shed inventory and be quicker at getting from supplier to store. They also need to shrink their brick-and-mortar presence and expand their e-commerce front.
Toys “R” Us is a destination for all parents looking for toys — they have that going for them and will continue to have consumer and brand support. If they took a cue from Best Buy about creating a single experience for the consumer to center around, they could make this turnaround quick and profitable.
Founder, CEO & Author, HeadCount Corporation
Restructuring under Chapter 11 is a sad and traumatic outcome for a once vaunted brand like Toys “R” Us. Inevitably companies like Toys “R” Us will emerge from this and carry on in some way. However, the long-term prospects are uncertain. Naturally management will need to convince its stakeholders that there is a clear path to success — a clearly articulated and believable action plan will be critical to restoring confidence among the stakeholders and especially to employees who are immediately and directly impacted by this.
Chief Executive Officer, The TSi Company
The problem I have with this is it’s another story of a retailer bought out by private equity and then years later filing for Chapter 11. Toys “R” Us should be the leaders in the toy industry in a big way, but while carrying so much debt they were not able to modernize their stores with an exciting reason for shoppers to visit them. Said simply, Toys “R” Us stores are old, outdated and tired. They need to be the “impressive in-store playground” for kids today, and they’re not. Their prices are a little higher than some of their competitors also making it difficult to compete. So filing for Chapter 11 is good; closing the underperforming stores is also smart. However, quickly bringing Toys “R” Us into the toy world of tomorrow with technology and stores we want to visit is the only way Toys “R” Us will survive long term.
Retail Tech Marketing Strategist | B2B Expert Storytelling™ Guru | President, VSN Media LLC
This is such an important observation, Art. Thanks for raising it. Once the private investors began treating TRU as a cash cow instead of a dynamic and adaptable category leader, its days were numbered.
President, founder and CEO Interactive Edge
It’s an uphill battle for Toys “R” Us. They never seemed to keep up with all the changes in retail and with the bankruptcy filing it will be even more challenging. Going to stores sometimes is unpleasant enough, going to one of their stores is downright depressing. Glad my kids are grown. Hopefully when they start having kids I can just use my Amazon Prime to avoid the toy shopping experience.
Strategy & Operations Delivery Leader
Managing Director, StoreStream Metrics, LLC
” … the dawn of a new era … ” indeed! The broader toy category will fast become primarily an online category. If I can purchase a snowblower online then toys are an easy online purchase. All the debt restructuring (not elimination!) in the world will not change that reality. There are a lot of brand vendors that will never get paid for their products and if they do, it’ll be pennies on the dollar. The only way Toys “R” Us will survive is if they can reinvent the store. The store needs to become a playground and community center for young moms and children — that happens to sell relevant stuff!
Independent Board Member, Investor and Startup Advisor
Senior Retail Writer
Toys “R” Us may need to take a cue from Nordstrom and create brick-and-mortar spaces that focus on experience. Toys “R” Us locations need to become a destination where kids want to go to play and discover instead of a space where parents go to pull a boxed toy off the shelf. If Toys “R” Us is successful with their Times Square location this holiday, I think there is hope for them yet.
Managing Director, GlobalData
Private equity has a lot to answer for in this case. They have used Toys “R” Us as an ATM and left the business in a challenging position. Certainly not all of the problems are debt-related — but those high debt levels have made it difficult for Toys “R” Us to evolve and adapt its stores, seriously invest in its website and create a sustainable, competitive business.
Chapter 11 buys breathing space, and it creates flexibility — but it is not necessarily the savior of the firm. Market dynamics are firmly against Toys “R” Us, and it will need to evolve its entire proposition and manage its liabilities if it is to survive.
Retail and Customer Experience Expert
Brand manufacturers like Lego are going direct while toys can be purchased online and in other stores like Target and Walmart. Toys “R” Us needs to define the toy buying niche experience for itself and also develop exclusive toy lines quickly to have a future.
President, Raftery Resource Network Inc.
I’m a little surprised that this has taken so long. Discounters have been chipping away at Toys “R” Us for years. Without their robust chargeback operation, Toys “R” Us would have been gone in the slump of 2008. Amazon, free delivery, etc. was just the last blow.
Aside from pet supply stores that allow furry shoppers and provide ancillary services, I think many category killers are doomed to a similar fate as Toys “R” Us. One stop shopping is in vogue once again.
Director of Marketing, OceanX
This one is sad but also so obvious to see coming. I wish I could say that this will turn around a brand that I loved as a kid, but I don’t think Chapter 11 will force management to make the necessary and obvious changes that they should have made over the last decade. Everyone points to retailers like Apple and REI where shoppers come as a destination to play and learn. Toys “R” Us by the very nature of their products and their target audience should have been focusing on playing and learning and transforming their stores into destination locations instead of trying to compete on price, selection and worrying about bonuses tied to same store sales.
CFO, Weisner Steel
Honestly, TRU has 1600 underperforming stores. The company will receive vendor “support” until the latter can find a way to extricate themselves from this, and of course it will get plenty of attention from advisers, lawyers, accountants who won’t need to go to the checkout to come away with what they want: what remains of the cash.
I’m not sure where this will end, but I know how it will end … badly.
Retail Transformation Thought Leader, Advisor, & Strategist
CEO, FutureProof Retail
Toys “R” Us needs to take a showrooming approach with smaller stores.
sales management consultant
What’s hot? Halloween. What’s not? Toy stores that don’t get it. This weekend people of all ages will go to Home Depot, Walmart and their respective counterparts to load up on this years latest and greatest Halloween stuff. Hard to get and the latest winning inventory items for this holiday will be stacked to the ceiling in these retail stores.
As for the highly regarded Toys “R” Us, well, they see things differently and much prefer doing things as they see fit. Is it any wonder they are waiting for the market to catch on and do the right thing. The only thing that is worse than the store merchandising and inventory is declining receipt count and size. There is little or no time for the company to continue with this management style. We need a realistic leadership that knows 21st century brick and mortar sales merged with e-commerce market expectations.