Billionaire’s long shot to save Toys “R” Us
LOS ANGELES — Pulled by four children, all chanting “Save Toys ‘R’ Us,” Isaac Larian sat inside a red-and-yellow plastic toy car this week, holding two tots in his lap, as he manoeuvred his way through the chain’s store in the Woodland Hills neighbourhood.
The 64-year-old toy magnate and his rambunctious entourage were followed along the worn linoleum floor by a cameraman who captured their every moment.
The object of all this fun and games? A video to promote Larian’s “Save Toys ‘R’ Us” GoFundMe campaign, a long-shot effort to keep open hundreds of the chain’s stores.
“Toys ‘R’ Us is like a sick patient on the ICU table, and if you don’t operate fast, it’s going to die,” said Larian, chief executive of Van Nuys-based MGA Entertainment, the maker of the popular Bratz doll.
Last week, Larian announced that he was starting a campaign to raise $1 billion to save the stores after the chain’s decision to close its 735 stores in the U.S. after it could not agree with its creditors on a restructuring plan. The Wayne, N.J., company filed for Chapter 11 bankruptcy protection in September.
He doesn’t have a lot of time. Liquidation sales started at all U.S. stores Friday, and outside the San Fernando Valley store hung a large yellow-and-black temporary sign that said simply, “Going out of business.”
Larian figures he has until early May at the latest to get a deal done.
The Canadian business is going a different route. Toys “R” Us is in talks to sell its entire Canadian business as a going concern.
Larian has pledged $100 million of his own money and said he has another $100 million US from other undisclosed large investors. Still, he needs hundreds of millions of dollars more to save the 200 to 400 U.S. stores he would like to combine with 82 Canadian stores still in operation — if the Bankruptcy Court would even approve that request.
Restructuring adviser Larry Perkins noted that the toy chain has been in bankruptcy for months and has been unable to work out a deal to stay in business.
“I’m familiar with virtually all the professionals that are working on the case. The investment bankers are some of the best in the world. If this was a viable alternative, I think they would have uncovered this stone,” said Perkins, chief executive of Sierra-Constellation Partners in Los Angeles.
Others have poked fun at the notion that a GoFundMe campaign could help save Toys “R” Us. The website usually is where people go to raise a few thousand dollars for medical expenses or a family funeral.
Until now, the largest campaign on the platform was for a Time’s Up Legal Defense Fund, to provide legal assistance to survivors of workplace sexual harassment. It has raised more than $21.2 million in three months from almost 20,500 donors. Larian has said he wants to raise as much as $800 million on the platform from donors.
Among the items the campaign is offering donors who give $100,000 are a bumper sticker with the campaign’s #SaveToysRUs hashtag, a pin, a magnet, a T-shirt and an invite to a local Toys “R” Us reopening party. But no stake in the company. “If any of his investor friends would want to contribute, they would not contribute on the GoFundMe page,” said Andreea Gorbatai, an assistant professor at the University of California, Berkeley’s Haas School of Business. “They would pitch in for equity, so attention seems like the only thing he’s looking to get out of this.”
Larian didn’t deny that the GoFundMe campaign was a bit of a publicity stunt, but said, “And what’s wrong with that?”
He said that since news broke about the campaign late last week he has heard from other large private investors who feel that Toys “R” Us is worth saving.
“They have not come and said, ‘I’m going to give you $100 million or $50 million,’ but these are very, very high net worth individuals who for them to write a cheque for $300 million or $400 million is not a problem,” Larian said.
And the campaign has resonated with fans of the retailer who have far less money. As of Thursday morning, it has attracted a little over 1,700 people who have donated $53,000 — in addition to the $200 million already given by Larian and his investors.
The donations ranged from $5 to $1,000, and included $100 from Isaac Wolman and Sara Gibber, a Baltimore couple who own Make It Real, a company that sells toys focused on girls’ creativity.
Unlike other big-box stores, Toys “R” Us offered small toy manufacturers space on its shelves to display several products, and Make It Real developed products specifically to sell in Toys “R” Us stores, Wolman said.
“People talk about Amazon picking up a large percentage of the missing business, but the reality is Amazon is not a place where you go and search and you experience a multitude of different toys,” Wolman said. “Part of the wonder of Toys “R” Us was going in with an empty shopping cart, walking up and down the aisles and finding something you love, and it could be from a brand you’d never heard of before.”
The stakes are high for Larian and other toymakers. Toys “R” Us has been a testing ground for large toymakers, too, and accounts for about 18 per cent to 20 per cent of MGA sales.
The retailer was founded in 1957 by toy industry pioneer Charles P. Lazarus, who died last week. Toys “R” Us found success in having a vast inventory of products that often could not be found elsewhere. But it has suffered since it was taken private in a leveraged buyout in 2005 that loaded it with $5.3 billion in debt.
In its bankruptcy filing, CEO David Brandon said the chain had a plan to create interactive spaces with rooms for parties, live product demonstrations and places for kids to play with new toys without buying them. However, the company never had enough money to carry out the plan.
Larian declined to be specific about how he would operate the stores if he controlled the, but hinted at something similar. “It’s not just about selling toys — it’s an experience, and unfortunately, during the past several years when this company was controlled by private equity (companies), not much has been spent to make these stores interactive.”