Toys R Us files for bankruptcy to restructure
In filing for bankruptcy, Toys R Us joins a list of dozens of store chains that have done so already this year as online leader Amazon increasingly exerts its influence over a huge part of the retailing world.
The toy chain, hobbled by $5 billion in debt and more intense competition, filed for protection from its creditors ahead of the key holiday season. Like so many retailers that find it harder to co-exist with Amazon, analysts say, Toys R Us needs to improve its online services and offer special experiences in the stores.
For Toys R Us, that might be game demonstrations or hosting birthday parties. It says it will keep its 1,600 Toys R Us and Babies R Us stores open, and keep serving customers while in bankruptcy. But the chain faces hurdles — price is a big issue for shoppers, and Toys R Us acknowledges that it can’t compete there.
“We will go to Toys R Us to check out the current toys, and while we are at the store, we will be looking up prices on the phone on Walmart.com and Amazon,” said Randy Watson of Fort Worth, Texas.
He used to pick up items at Toys R Us for his kids. But for his grandchildren, he uses the store to see what’s available and then shops elsewhere to get lower prices.
The bankruptcies of nearly three dozen retailers since the beginning of the year — many of them very small companies, but also well-known names like Payless Shoe Source, Gymboree Corp. and True Religion jeans — has resulted in job losses and store closings. Toys R Us didn’t say whether it would trim its workforce of nearly 65,000 employees worldwide.
Credit Suisse believes that there could be a total of 8,640 closings by stores of all types, which would surpass the 2008 peak of 6,200. In 2008, the number of bankruptcies was at a historic high of 569, according to S&P Global Market Intelligence.
Amazon, meanwhile, has been using its $99-ayear Prime service as a way to gain fierce shopper loyalty as it adds more perks like same-day delivery in a growing number of markets. And it now has hundreds of Whole Foods stores that it could use as distribution points.
“Amazon has the level of convenience that so far surpasses the ability of traditional retailers to offer,” said Karl Havard, a retail industry expert for PA Consulting Group, a global retail consultancy. “There’s a lot of inertia in the retail boardroom. They’re not prepared to take the risk.”
Toys R Us was a major force in toy retailing in the 1980s and early 1990s, and was one of the first of the “category killers” — retailers that focused on one merchandising category and offered low prices. That combination hurt mom-and pop shops that couldn’t compete on breadth of inventory or price.
But like its peers, the now-defunct Sports Authority, Borders and Circuit City, Toys R Us started losing shoppers to discounters like Walmart and Target, and then to Amazon.
GlobalData Retail estimates that about 13.7 percent of toy sales were made online in 2016, up from 6.5 percent five years ago. And Toys R Us has also been hurt by children shifting to mobile devices as playthings.
But the toy industry still needs Toys R Us, says Jim Silver, editor in chief of toy review website TTPM. He cites the fact that it sells toys all year, rather than just at the holidays, and has helped propel toy crazes such as ZhuZhu Pets during the downturn.
“If toy companies lost Toys R Us, it would be a hardship for a lot of companies,” said Silver.
Toys R Us has also struggled with debt since private-equity 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, but that never happened because of its weak financial performance.
The company said it’s “well-stocked as we prepare for the holiday season and are excited about all of our upcoming instore events.”
U.S. toy sales rose 6 percent last year on top of a 7 percent increase in the prior year, said NPD Group, a market research firm. That was the biggest increase since 1999 and was fueled by several blockbuster movies.
Toys R Us said it expects to continue honoring return policies, warranties and gift cards, and customer loyalty programs.