Toys R Us has officially announced that they are winding down their U.S. Business, with plans to close all of their stores in the United States. Liquidation proceedings have been officially filed (seen Here). They are keeping the option open to sell up to 200 stores to their Canadian division, but are proceeding with full liquidation. You can see the statement in full after the jump. My original post can be seen below.
Word is coming in from multiple outlets now. Toys R Us, the last big box store focused mainly on toys and games will close it’s doors for good in the United States. Word came down earlier that Toys R Us stores in the United Kingdom were closing, and now we get the news that it’s U.S. counterpart will follow suit. Both CNN and the Wall Street Journal (subscription required) are reporting that no last minute save is coming, and employees have been notified to prepare for liquidation. From CNN:
“The iconic toy retailer will shut or sell all of its almost 800 stores in the United States, a source familiar with the matter told CNNMoney on Wednesday. About 33,000 jobs in the United States are at risk.
The company’s CEO, David Brandon, notified employees earlier in the day, according to an earlier report by The Wall Street Journal.”
Saddled with crushing debt by the private equity firm that purchased the company in 2005, the store chain was never able to recover. The new owners loaded it Toys R Us with debt through bank loans and acquisitions. They had hoped to find a seller who would take on the company, as well as the debt, but that never materialized. Day to day operations, leading up to the bankruptcy last year, were yielding plenty of cash. Unfortunately, any and all money that would normally be invested in infrastructure, re-branding, expansion and upgrades was simply lost in the high monthly payments to keep the debt at bay. From Forbes:
“While Toys ‘R’ Us said the “vast majority” of its stores are profitable, it will likely be reevaluating at its physical footprint during the bankruptcy process.”
It all came to a head in September, as the company filed for bankruptcy. Growing fears of the company going out of business, negative word of mouth, and increased pressure by Walmart, Target and Amazon contributed to a negative holiday season at the retailer, and they simply were unable to recover. From CNBC:
“Sales were down more than hoped as was traffic and the amount of toys in stock it got out the door. Meanwhile, its profits were squeezed as Amazon and big-box retailers Target and Walmart slashed prices to reel in customers. For these retailers, toys could act as bait, with the hope that once shoppers came for the toys they would also purchase other items with higher profit margins. Toys R Us doesn’t have any such buffer.
Toys R Us discounted roughly 10 percent more of its products in holiday 2017 compared with the prior year, according to Market Track. The company had a “material miss” on its holiday sales, said a person familiar with the results. This at the same time Amazon said it had its best year across the board.”
Unfortunately, this will lead to troubles for the entire industry. Both Mattel and Hasbro suffered losses on Wall Street this week, as news came in the retailer was likely to close its doors. Some analysts believe that toys sales will permanently lose more than 15% of their total sales with the closure of Toys R Us stores. The company was known for taking chances on smaller toy companies and more experimental products. Companies such as Target and Walmart focus more on trending items and long time popular brands, and simply don’t have the real estate to expand their toy aisles with unproven companies or product lines that were routinely welcome at Toys R Us.
As a website dedicated to modern and classic brands, we are saddened by the closings, and recognize that the industry will be undergoing some major changes in the coming months and years to compensate for losing prime retail space. While companies like Hasbro and Mattel, who focus on contemporary and evergreen lines like Star Wars, Hot Wheels, Marvel and DC Comics, will more easily shift their focus to compensate for the loss, smaller companies focusing on niche licenses and toy lines will more than likely need to refocus to keep up. It may be years before the fallout truly is felt for the second tier toy producers. In the end, we remember Toys R Us for what it was to our childhood, while also recognizing the sever mismanagement by an investment firm who had little interest in ensuring the long term viability of household brand name. So long Toys R Us…for better or worse, your loss will be felt.
TOYS“R”US TO WIND DOWN U.S. BUSINESS
WAYNE, NJ – March 15, 2017 – Toys“R”Us, Inc. today announced that it has filed a motion seeking Bankruptcy Court approval to begin the process of conducting an orderly wind-down of its U.S. business and liquidation of inventory in all 735 of the Company’s U.S. stores, including stores in Puerto Rico. Toys“R”Us will provide more details about the plans for the liquidation of its U.S. stores and going out of business sales in the near term.
Toys“R”Us also announced that it is pursuing a going concern reorganization and a sale process for its Canadian and international operations in Asia and Central Europe, including Germany, Austria and Switzerland. The Company’s international operations in Australia, France, Poland, Portugal and Spain are considering their options in light of this announcement, including potential sale processes in their respective markets. The Company’s stores in all these international markets are currently open and serving customers.
In connection with the sale process, the motion the Company filed with the Bankruptcy Court included bidding procedures for the Canadian operations. The Company also disclosed that it is engaged in discussions with certain interested parties for a transaction that could combine up to 200 of the top performing U.S. stores with its Canadian operations. While discussions continue on this potential transaction, Toys“R”Us is seeking court approval to implement the liquidation of inventory in all the U.S. stores, subject to a right to recall any stores included in the proposed Canadian transaction.
The previously announced administration of the UK business continues.
Dave Brandon, Chairman and Chief Executive Officer, said, “I am very disappointed with the result, but we no longer have the financial support to continue the Company’s U.S. operations. We are therefore implementing an orderly process to shutter our U.S. operations and will pursue going concern sales or reorganizations of certain of our international businesses, while our other international businesses consider their options.”
Brandon continued, “There are many people and organizations who have remained in our corner every step along the way. I want to thank our extraordinary team members who helped build Toys“R”Us into a global brand. I also want to express my appreciation for my colleagues on our board who have continued to provide support to sustain the brand and our operations throughout the restructuring process. I would also like to thank our vendors who we owe a great deal of gratitude to for their decades of support. This is a profoundly sad day for us as well as the millions of kids and families who we have served for the past 70 years.”
The Company and its advisors are working to minimize the impact of the U.S. liquidation on the Canadian and other international markets. As part of these efforts, the Company is implementing a transition services arrangement for the next 60 days and is developing plans for a potential shared service function to support the international operations going forward.
Additional information regarding the Company’s restructuring process can be obtained by calling the Company’s Information Hotline, toll-free in the U.S. and Canada at (844) 794-3476, or sending an email to toysrusinfo@PrimeClerk.com. Court filings and other documents related to the court-supervised process in the U.S. are available on a separate website administered by the Company’s claims agent, Prime Clerk, at https://cases.primeclerk.com/toysrus.
Kirkland & Ellis LLP is serving as principal legal counsel to Toys“R”Us, Alvarez & Marsal is serving as restructuring advisor and Lazard is serving as financial advisor.