Biggest toy vendors are not willing to let go of Toys ‘R’ Us
Mattel and Hasbro are more than willing to maintain the merchandise supply line
Rest easy, kids. Toys “R” Us isn’t going anywhere, at least not if the makers of Barbie and Transformers have their way.
The toy chain recently filed for bankruptcy-court protection, another in a string of speciality retailers felled by Wal-Mart Stores, Amazon.com and the rest of the online onslaught. Toys “R” Us had been hobbled by more than $5 billion (Dh18.36 billion) in debt, which required over $400 million a year to service.
Yet, the company, which operates about 1,600 stores globally, will likely survive because manufacturers such as Mattel, Hasbro and closely held MGA Entertainment Inc. need the last remaining toy chain. These vendors are eager for whatever remaining leverage they have against the might of Amazon and Wal-Mart, the bane of all companies focused on a single category of shopping.
“Oh my God, they are very important, and people don’t understand,” Isaac Larian, CEO of MGA, said of the toy chain. “That’s the only place where kids can go and just buy toys. There is no toy business without Toys ‘R’ Us.”
Manufacturers’ support
For its part, the company said it doesn’t plan to close stores and will continue normal operations at its namesake outlets, as well as Babies “R” Us, and their websites. In fact, many of its agreements with debt holders prohibit the company from closing stores, restricting its ability to slim down. Its 255 stores outside the US and Canada aren’t part of the filing. In many respects, suppliers have been propping up Toys “R” Us for years, according to Moody’s analyst Charlie O’Shea; they give the chain exclusive products during the holidays and funds for promotions to help it compete with the general merchandisers. The manufacturers offer this support because they want a place to sell toys at full price, year round.
Major brands have also been funding an overhaul of Toys “R” Us stores by adding more featured areas for top brands such as Mattel’s American Girl dolls.
In electronics, Best Buy holds the same last-chain-standing mantle after Circuit City and HHGregg disappeared. In books, Borders went belly up, while Barnes & Noble remains. Similarly, KB Toys perished, and Toys “R” Us will likely limp along.
Cash on delivery
During a Chapter 11 bankruptcy filing, a company continues operating to give it a chance to come up with a plan to repay at least part of its debt. The toy chain has received a commitment for more than $3 billion from new and existing lenders to ease its debt burden and fund operations during bankruptcy.
Toys “R” Us filed now because 40 per cent of its vendors stopped shipping, unless they received cash on delivery. CEO Dave Brandon said the company needed to build inventory in time for the holiday season, which accounts for 40 per cent of annual revenue.
That means suppliers’ support for the reorganisation plan is key to emerging from bankruptcy, according to Noel Hebert, an analyst for Bloomberg Intelligence. The company has sought to win over large vendors by getting approval to pay them some of the tens of millions they’re owed as creditors. This group includes Mattel, Hasbro, MGA, Lego, and Jakks Pacific.
“Vendors are why they are in, they will be a big part of why they get out,” Hebert said.
A case in point: Borders ended up liquidating after its filing because suppliers wouldn’t support a reorganisation. Once Toys “R” Us does emerge, Mattel and Hasbro will have to keep helping revamp its stores and offering flexibility to compete with Amazon and Wal-Mart on price.