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Toys ‘R’ Us seeks bankruptcy, crushed by online competition

Dawn McCarty (Bloomberg)
Wilmington, United States
Tue, September 19, 2017

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Toys ‘R’ Us seeks bankruptcy, crushed by online competition In order to give safety reassurance to the parents, Lego will require parents to verify their children via e-mail. (Shutterstock/Ekaterina_Minaeva)

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oys “R” Us filed for bankruptcy as the retailer, loaded with debt in a buyout more than a decade ago, failed to keep consumers from abandoning its stores for the lower prices and convenience of online shopping.

The company listed debt and assets of more than $1 billion each in Chapter 11 documents Monday in US Bankruptcy Court in Richmond, Virginia. Prior to filing, the chain secured more than $3 billion in financing from lenders including a JPMorgan Chase-led bank syndicate and certain existing lenders to fund operations while it restructures, according to a company statement. The funding is subject to court approval.

The company didn’t announce plans to close stores, and said its locations across the globe would continue normal operations. 

“Like any retailer, decisions about any future store closings – and openings – will continue to be made based on what makes the best sense for the business,” Michael Freitag, a spokesman for Toys “R” Us, said in an email.

The bankruptcy filing is the latest blow to a brick-and-mortar retail industry reeling from store closures, sluggish mall traffic and the threat of Amazon.com. More than a dozen major retailers have filed for creditor protection this year, including Payless, Gymboree and Perfumania Holdings, all of which are using the Chapter 11 process to close underperforming stores and expand online operations. 

Much of the toy merchant’s debt is the legacy of a $7.5 billion leveraged buyout in 2005 in which Bain Capital, KKR and Vornado Realty Trust loaded the company with debt to take it private. Since then, the Wayne, New Jersey-based chain has struggled to dig itself out.

Chief Executive Officer David Brandon took over Toys “R” Us in 2015 and sought to make shopping there a more enjoyable experience. Last year, he set out a vision of kids “dragging their parents to our stores because they want to see what’s going on.” 

The retailer introduced the “Hot Toy Finder,” which tells customers exactly where in their local store to find the items featured on its “Holiday Hot Toy List.” The chain, which has provided the annual list of the 50 hottest toys for 20 years, also offered price matching and free layaway.

While Brandon made some progress reducing liabilities, he ultimately was unable to resuscitate the closely held chain’s fortunes. The company reported a net loss of $164 million in the quarter ended April 29, compared to $126 million for the same period in the prior year. It hasn’t shown an annual profit since 2013.

“Together with our investors, our objective is to work with our debtholders and other creditors to restructure the $5 billion of long-term debt on our balance sheet,” Brandon said in the company statement.

 

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