Wednesday 27 June 2018

Toys R Us will close all of its stores in the US by the end of the week

Toys R Us is uttering its final gasps of breath before it vanishes from the retail landscape forever.

The toy retailer that was at times both venerated and reviled will wrap up all of its going-out-of-business sales by Friday, June 29. After that, all of its stores will close, and Toys R Us as we know it will cease to exist, the bankruptcy of the former stalwart of toy retail finished, its flame snuffed out.

The retailer's Twitter account has been counting down the days.

Many stores that have run out of stock have already closed. Those that are still open are running clearance sales of up to 60-90% off.

It's an unceremonious end for a retailer that was once known as a "category killer" — meaning that it got so good at one thing that it drove independent stores out of business.

Toys R Us filed a motion to liquidate its US business in March, setting off the process of closing or selling all 735 of its stores in the United States. It had filed for Chapter 11 bankruptcy protection in September.
A Toys R Us store in Brooklyn. Getty/Spencer Platt
How did we get here?
The debate over who and what killed Toys R Us is is still raging among analysts, company executives, and shoppers lamenting the chain's death.

Toys R Us was once king of the toy castle. In the 1990s, it was the biggest toy seller in the US, expanding rapidly as it pushed out smaller chains. But by 1998, things had changed, and Walmart began selling more toys than Toys R Us in the US — a signal of more trouble ahead.

Toys R Us then launched a turnaround plan that ended with the chain seeking buyers. Bain Capital, Kohlberg Kravis Roberts, and Vornado Realty Trust together invested $1.3 billion in a $6.6 billion leveraged buyout in 2005, taking Toys R Us private. The company had essentially been purchased using its equity, with the help of the private-equity cash.

This saddled Toys R Us with an astronomical amount of debt — over $5 billion worth — that the company hadn't shaken even a decade later. According to the filing with the bankruptcy court, Toys R Us was still making $400 million payments on its debt each year.

"In Toys' case, high leverage remaining from the 2005 leveraged buyout reduced financial flexibility, which in turn limited investment, leading to the erosion of the company's competitive position at a time when its primary competitors such as Walmart, Amazon, and Target were running on all cylinders," said Charlie O'Shea, a Moody's analyst.

These high payments prevented the chain from making the changes necessary to compete, like improving the in-store experience and beefing up e-commerce in the age of Amazon, the company said in the filing. The debt also prevented the chain from keeping up the appearance of its stores and ensuring its employees were well-paid.

The retail landscape was shifting underneath Toys R Us' feet, and the combination of increased competition and lack of maneuverability helped lead to its demise.

In the liquidation filing, Toys R Us blamed its poor holiday performance on Walmart, Target, and Amazon pricing their toys low enough that it couldn't compete and make a profit.

But not everyone agrees that Toys R Us' debt load led directly to its downfall.

"When you have Target/Walmart on one side and Amazon on the other ... the amazing thing is that it was alive at all," Jim Cramer said on CNBC.

(Source: BI)

No comments:

Post a Comment