‘Exhausted’ Toys ‘R’ Us suppliers weigh options as retailer shuts
CHICAGO/NEW YORK (Reuters) – When Toys ‘R’ Us secured a $3.1 billion bankruptcy loan in September, toy makers were reassured they would be paid for goods delivered to the company as it tried to emerge from Chapter 11.
Now those payments are at risk in a dramatic turn of events as the iconic toy retailer speeds toward US liquidation.
More than a dozen executives, specialists and lawyers interviewed by Reuters said they expected many small vendors to go bankrupt due to the disappearance of Toys ‘R’ Us and Babies ‘R’ Us in the United States.
While the downfall of Toys ‘R’ Us came quickly in the United States, the Wayne, New Jersey-based retailer is still trying to find a buyer for its businesses in Canada, Europe and Asia. In the meantime, it wants to keep stores stocked to maintain customers and value.
“We have a $14 [million] to $15 million payment due that hasn’t been paid,” said Isaac Larian, the chief executive of Bratz dolls maker MGA Entertainment. “If I was a guessing man, I wouldn’t think I’d get all of it back.”
MGA, whose L.O.L. Surprise! toys were the industry’s top seller last year, stopped supplying goods to Toys ‘R’ Us last Wednesday, he said, adding that Toys ‘R’ Us accounted for 15% of MGA’s annual sales. Larian spent Thursday and Friday on the phone with his lawyers and tending to a bid he and other vendors have made to acquire Toys ‘R’ Us’s Canadian operations.
“I have been working from 4 a.m. till midnight every day on this, talking to other toy-company executives, lawyers, bankers, other retailers,” Larian said. “I’m exhausted.”
At a Thursday hearing at US Bankruptcy Court in Richmond, Virginia, vendor lawyers said they were receiving hourly calls from clients about hundreds of millions of dollars of claims. Whether they receive payment will depend on the outcome of the liquidation proceedings.
For some, the writing for Toys ‘R’ Us had been on the wall. Marc Wagman, who heads insurance broker Gallagher’s US trade-credit and political-risk business, said credit insurers stopped covering Toys ‘R’ Us in the first and second quarters of 2017.
“Unfortunately, for a lot of these toy companies, Toys ‘R’ Us represented a means of testing consumer taste, a big retail opportunity and, for some, accounted for 20 to 40 percent of revenue. How that’s going to be replaced remains to be seen,” he said.
Toys ‘R’ Us, with $11b. in annual revenue and shops up to 4,600 square meters in size, was the last major specialty toy retailer, a loss not only for small, innovative toy makers that relied on it as a showcase, but also for brands such as Walt Disney Co. that rolled out products with partner labels for blockbuster films such as Frozen and some of the Star Wars series.
‘I’M LOSING A LOT OF BUSINESS’
“I have a short-term concern about the loss of business, the loss of one of my best partners over many, many decades,” said Joseph Shamie, the president of Delta Children, one of the chain’s biggest vendors of children’s furniture, with roughly 470 employees.
Shamie has been selling to Toys ‘R’ Us for more than 40 years, since he was 19, he said, adding: “I’m losing a lot of business and in very quick, unmanaged amount of time.”
Shamie said his company will continue to supply products to Toys ‘R’ Us stores outside the United States, but that they are “watching closely.”
“I have to create opportunity so I can continue to employ the people I employ,” he said.
In a dire landscape that claimed 17 retail bankruptcies and more than 8,000 US store closures last year alone, vendors are wising up about their customers’ financial health, paying close attention to online sales, new sources of revenue and, especially, liquidity.
Among those that could pick up toy-market share: big-box retailers Walmart Inc. and Target Corp.; chains such as J.C. Penney Co. Inc., Kohls Corp. and Bed Bath & Beyond; drugstores CVS Health Corp. and Rite Aid Corp.; and discount outlets like Dollar General Corp. or T.J. Maxx.
“We’ll work really hard with folks like Walmart and Target to see if they can take up volume by yearend,” said Jay Foreman, the chief executive of Basic Fun!, which sells Cake Pop Cuties and Poopeez as well as classics like Lite-Brite.
He expects a 10% revenue hit from the loss of Toys ‘R’ Us.
Foreman is also working with Amazon.com Inc., which will become its second- or third-biggest account this year, compared with ninth in 2015. But Amazon does not give minimum orders, he said, adding: “They’ll put it online and say, ‘We’ll see how it does.’”
Without mass distribution and a physical showcase, co-chief executive Nick Mowbray of toy maker Zuru Inc. said innovations would become far riskier, leaving a dent in toy selection for customers.
“Doing business with a company in Chapter 11 was not supposed to be a ‘gotcha’ situation, but apparently in this case it was,” Learning Resources Inc. chief executive Rick Woldenberg said. His Vernon Hills, Illinois, company is owed more than $1m. by Toys ‘R’ Us, he said.
Learning Resources will no longer supply to Toys ‘R’ Us, Woldenberg said, adding: “I don’t know how many times they think we can be punished.”
‘Doing business with a company in Chapter 11 was not supposed to be a ‘gotcha’ situation, but apparently in this case it was’