In the U.S., a joyless time, as 30,000 workers affected at Toys ‘R’ Us
You want a trip to Toys ‘R’ Us, head office of Geoffrey the Giraffe, to feel like a visit to a sugar plum Toyland.
But the mood is black these days inside One Geoffrey Way in Wayne, N.J., spiritual home of the cartoon mascot who’s been beckoning to kids for generations.
Shortly after 3 p.m. on Wednesday, Dave Brandon, chief executive officer of the iconic toy chain, delivered the news that his more than 30,000 U.S. workers had been dreading: We’re finished. After 70 years, Toys “R” Us would close shop — a casualty of Amazon-era retailing and debt-fuelled, private-equity deal-making.
The company is in discussions to sell its Canadian business, consisting of 82 stores, as a going concern.
“I am devastated that we have reached this point,” Brandon told a group of about 600 employees. “I truly believe we did our best, under what turned out to be nearly impossible circumstances.” He choked up as he spoke.
How did it come to this? The answer, as with most bankruptcies, is slowly, and then all at once. In the pre-Internet dark age, the company was the unrivalled supermarket of toys, the arbiter of fads and tastes that shaped the entire industry. Its advertising jingle — “I don’t want to grow up, I’m a Toys ’R’ Us kid” — is lodged in the brains of millions.
But by last September, just months before the crucial holiday season, relentless competition from Amazon and Walmart — combined with more than $5 billion in debt from a 2005 leveraged buyout — had finally overwhelmed the chain. With little warning it filed for bankruptcy in the United States in the hope, Brandon said at the time, of emerging better than ever.
“It’s the dawn of a new day for the company,” he proclaimed at the Toys ‘R’ Us in New York’s Times Square.
Instead, his hopeful plans unravelled at a startling clip. Battles quickly broke out between management and longtime creditors, who were owed about $5 billion at the time of the filing. Lenders soon were urging Brandon to shut hundreds of the 800 U.S. stores fast to contain the damage. Before long, vendors were growing wary about shipping toys to the chain, fearing they might not get paid.
Then came Black Friday, the crucial kickoff to the U.S. holiday shopping season. The Christmas run-up turned into a disaster for Toys ‘R’ Us. Brandon later complained that the September bankruptcy had shaken customers’ confidence. But there were other problems: The slow pace of negotiations with lenders was unnerving vendors and prompting creditors to urge more store closings.
Amid the disputes, suppliers grew increasingly anxious. Would Toys ‘R’ Us really emerge from bankruptcy? Firms that insure vendor shipments and provide short-term financing began to back away. As of early February, most had bolted.
By then, vendors had learned what Brandon already knew: The holiday season had delivered a blow, with sales plunging about 15 per cent from the previous year.
Brandon’s initial optimism was fading. In a Jan. 23 letter to employees, he blamed the holiday showing on the bankruptcy, as well as some operational missteps.
Formerly athletic director at the University of Michigan, he’d had a successful stint at Domino’s Pizza and was recruited to run Toys R Us in 2015. Now, he desperately needed another win.
But beyond picking executives, the privateequity owners generally took a hands-off approach, people familiar with the matter say. Toys ‘R’ Us, meantime, was left to pay more than $400 million a year in interest alone on its debts.
By February, some senior lenders began to push for an outright liquidation. And, with that, 70 years of retail history slid toward an ignominious end.
Prospects could be buoyed by a group of toymakers who said Wednesday they’re looking to make a bid for the company’s Canadian business.
On Thursday, at the Toys ‘R’ Us Express on 33rd Street in Midtown Manhattan, Angela Milligan, 28, and Chace Douglas, 25, were looking for bankruptcy bargains (no liquidation markdowns yet). Other customers waxed nostalgic. “We grew up with it,” said John Park, 39. “My kids aren’t going to experience a place where there’s just shelves of toys.”