Toys “R” Us to shutter about 180 stores in U.S.
Despite president’s reassurances, closures may point to trouble in Canada, some experts say
Toys “R” Us announced Wednesday it will close approximately 180 stores in the U.S., and while the president for Canadian operations reassured customers that it is business as usual north of the border, not everyone believes that situation is likely to last.
Hobbled by $5 billion (U.S.) in debt, the company that once was king of toys in North America obtained creditor protection in the U.S. and Canada in September in order to restructure.
The U.S. store closings will begin in February and the majority of the targeted locations will go dark by mid-April. Some Toys “R” Us and Babies “R” Us stores will be combined.
About 25 employees work at each of the 900 stores in the U.S. and those who cannot be transferred to other locations will be given severance packages, according to a U.S. spokesperson.
Toys “R” Us has struggled with debt since privateequity firms Bain Capital, KKR & Co. and Vornado Realty Trust took it private in a $6.6-billion leveraged buyout in 2005. The plan had been to take the company public again, but weak sales have prevented that from happening.
In a letter to customers, Toys “R” Us chairperson and CEO Dave Brandon said that the company made some missteps during the critical holiday season.
“As the leader of this company, I want you to know that we can and will address the gaps in the experience that you may have had when shopping this holiday,” Brandon wrote.
All 83 Toys “R” Us stores in Canada will remain open for business, honouring all their policies, warranties, Baby Registry, Gift Cards and RClub loyalty program, according to a statement released by Melanie Teed- Murch, president, Toys “R” Us and Babies “R” Us Canada.
Teed-Murch was not available for interviews on Wednesday.
“Since the initiation of our September court proceedings, our primary focus has been reimagining our business with you, our customers, in mind and ensuring a normal course of operations. Our team is hard at work strengthening our competitive position and making the improvements necessary to ensure that we have the products when, where and how you choose to shop with us,” according to the statement from Teed-Murch.
New-format Toys “R” Us stores recently opened in Langley, B.C. and Barrie, Ont., have proven successful and will be rolled out in other locations in Canada, Teed-Murch’s statement goes on to say.
According to documents filed in Ontario Superior Court, Canadian operations were profitable over the holidays, posting stronger-than-expected sales.
But Lou Brzezinski, a partner in Blaney McMurtry’s commercial litigation group, believes the store closures in the U.S. are bad news for Canada.
“Notwithstanding the profitability of Toys “R” Us in Canada, they are subject to the various loans and agreements and documents that Toys “R” Us USA entered into,” said Brzezinski, who represents Toys “R” Us suppliers on both sides of the border.
“Because of the complete and total dependency of the Canadian operation on Toys “R” Us USA, there now seems to be some danger that the company may not survive — in either country.”
“It’s rare that a company can cut its way to growth,” said Allen Adamson, co-founder of brand consultancy firm Metaforce and co-author of Shift Ahead, How the Best Companies Stay Relevant in a Fast-Changing World.
Adamson pointed out that Toys “R” Us has been facing intense competition from Walmart, Target and now Amazon for a long time, and hasn’t been able to figure out how to thrive yet.
Being saddled with debt meant Toys “R” Us couldn’t invest the way it needed to pull ahead, he said.
And a new, challenging trend has emerged, Adamson said — consumers are increasingly choosing small, boutique experiences over big-box shopping.
Small-format toy stores, such as Mastermind Toys in Canada, are eating into Toys “R” Us sales.
“The storm clouds have been gathering for a long time,” Adamson said. While its numbers have been shrinking, Toys “R” Us sells about 20 per cent of the toys bought in the U.S. according to Stephanie Wissink, an analyst at Jefferies LLC.
That pressure will force the company to take a close look at all of its stores, and more will likely be shuttered over the next year or two, Wissink said.
Toys “R” Us currently is holding going-out-of-business sales at 25 stores in the United Kingdom. The U.K. arm of Toys “R” Us also is undergoing a restructuring.