TOYS R BUST
Without Toys R Us, 30,000 jobs, a black hole for toy makers
NEW YORK — The demise of Toys R Us will have a ripple effect on everything from toy makers to consumers to landlords.
The 70-year-old retailer sought court approval Thursday to liquidate its remaining 735 stores, eliminating the jobs of some 30,000 employees while spelling the end for a chain known to generations of children and parents for its sprawling stores and Geoffrey the giraffe mascot.
The closing of the company's U.S. stores over the coming months will finalize the downfall of the chain that succumbed to heavy debt and relentless trends that undercut its business, from online shopping to mobile games.
And it will force toy makers and landlords who depended on the chain to scramble for alternatives.
CEO David Brandon told employees Wednesday the company's plan is to liquidate all of its U.S. stores, according to an audio recording of the meeting obtained by The Associated Press.
The company operates four stores in the Oklahoma City metro, and a Toys R Us store in Tulsa.
There is still some hope. Toys R Us will try to bundle its Canadian business, with about 200 U.S. stores, and find a buyer. The company's U.S. online store would still be running for the
next couple of weeks in case there’s a buyer for it. Workers in the U.S. will get paid for the next 60 days if they show up for work, but after that all benefits and pay will be cut, Brandon told employees at the meeting, according to the recording. Some workers will be asked to stay longer to help with the liquidation. The company said that gift cards will be honored for the next 30 days. It will not accept returns once the liquidation sales start.
It’s likely to also liquidate its businesses in Australia, France, Poland, Portugal and Spain. It’s already shuttering its business in the United Kingdom. That would leave it with stores in Canada, central Europe and Asia, where it could find buyers for those assets.
Toys R Us Asia Ltd. has more than 400 retail outlets in Brunei, China, Hong Kong, Japan, Macau, Malaysia, Philippines, Singapore, Taiwan and Thailand. It is a Hong Kongbased joint venture with the Fung Group, which owns a 15 percent stake. It also controls Asian sourcing giant Li & Fung, a major supplier to Western retailers like Walmart.
“We worked as hard and
as long as we could to turn over every rock,” Brandon told employees.
But in his address, Brandon took shots at shoppers and vendors who cut back on their support for the chain in recent months.
“I believe that all of them will live to regret what is happening to our company,” he said.
Troubles over time
The company’s biggest albatross was that it struggled with massive 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. Weak sales prevented them from taking the company public again. With such debt levels, Toys R Us did not have the financial flexibility to invest in its business.
When the chain filed for Chapter 11 bankruptcy protection last fall, saddled with $5 billion in debt that hurt its attempts to compete as shoppers moved to Amazon and huge chains like Walmart, it pledged to stay open.
The company’s troubles have affected toy makers Mattel and Hasbro, which are big suppliers to the chain. But the likely liquidation will have a bigger impact on smaller toy makers that rely more
on the chain for sales. Many have been trying to diversify in recent months as they fretted about the chain’s survival.
Toys R Us has been hurt by the shift to mobile devices taking up more play time. But steep sales declines over the holidays and thereafter were the deciding factor, said Jim Silver, editor-in-chief of toy review site TTPM. com.
The company didn’t do enough to emphasize that it was reorganizing but not going out of business, Silver said. That misperception kept customers away from its stores because they didn’t think they would be able to return gifts.
Now, the $11 billion in sales still happening at Toys R Us each year will disperse to other retailers like Amazon and discounters, analysts say. Other chains, seeing that Toys R Us was vulnerable, got more aggressive. J.C. Penney opened toy sections last fall in all 875 stores. Target and Walmart have been expanding their toy selections. Even Party City is building up its toy offerings.
“Amazon may pick up the dollars, but won’t deliver the experience needed for a toy retailer to survive and thrive in today’s market,” said Marc
Rosenberg, a toy marketing executive.
Toys R Us had dominated the toy store business in the 1980s and early 1990s, when it was one of the first of the “category killers”— a store totally devoted to one thing. Its scale gave it leverage with toy sellers and it disrupted general merchandise stores and mom-and-pop shops. Children sang along with commercials about “the biggest toy store there is.”
But the company lost ground to discounters like Target and Walmart, and then to Amazon, as even nostalgic parents sought deals elsewhere. GlobalData Retail estimates that nearly 14 percent of toy sales were made online in 2016, more than double the level five years ago. Toys R Us still has hundreds of stores, and analysts estimate it still sells about 20 percent of the toys bought in the United States.
It wasn’t able to compete with a growing Amazon: The toy seller said in bankruptcy filings that Amazon’s low prices were hard to match. And it said its Babies R Us chain lost customers to the online retailer’s convenient subscription service, which let parents receive diapers and baby formula at their doorstep automatically. Toys R Us blamed its “old technology” for not offering its own subscriptions.