As the last toy-centric brick and mortar business from the booming toy era of the late 70’s to early 90’s, Toys R Us stood as a stubborn pillar of fun in a world quickly losing interest in everyday toys. After the closing of Lionel’s Kiddie City, the liquidation and sale of Kay-Bee Toys, not to mention Toys R Us’ own acquisition of FAO Schwartz, the toy retail industry was on borrowed time since the mid-2000’s. As a kid, and even now as an adult, I have always enjoyed trips to Toys R Us, preferring to spend my money there than Walmart or Target, who aggressively took profit loses on toy sales in the hopes of pulling customers away from Toys R Us retail stores (and it worked).
Last night, it was reported by Bloomberg that Toys R Us is prepping to liquidate its
North American U.S. assets and close their doors for good. After being bough out in 2005, the private equity firm that purchased the company loaded it up with debt through bank loans and acquisitions. It was clear for a long time they had hoped to eventually flip the company and walk away with someone else taking on the burden of the growing debt issues. From Bloomberg:
“Toys “R” Us’s $583 million of first-lien bonds due in 2021 dropped as much as 4 cents on the dollar to 83.9, according to bond-pricing system known as Trace. That’s the biggest decline since September, the month the company filed for bankruptcy.
The downfall of Toys “R” Us can be traced back to a $7.5 billion leveraged buyout in 2005, when Bain Capital, KKR & Co. and Vornado Realty Trust loaded the company with debt. For years, the retailer was able to refinance its debt and delay a reckoning. But the emergence of online competitors, like Amazon.com Inc., weighed on results. The company’s massive interest payments also sucked up resources that could have gone toward technology and improving operations.”
As a longtime collector, and lifetime fan of action figures and toys, the latest development will only cause problems throughout the toy industry. Many casual fans will simply shrug at the loss of the retail outlet, which they see as just a more expensive alternative to the low prices of Walmart. The eventual closing of Toys R Us will surely have an impact on toy giants like Mattel, Hasbro and LEGO, but it’s the second and third tier toy producers that will see the biggest hit to their businesses. Companies such as NECA, McFarlane, Bluefin and Mezco, which have little real retail presence outside of Toys R Us will lose valuable customers who would stumble upon the items that other retailers simply do not stock. When word got out that Toys R Us was considering a bankruptcy filing, multiple major toy manufacturers panicked. This led to them cancelling items going to stores, or demanding payment in full up front. Had those companies not panicked, the outcome would likely be different. From Marketplace:
“Which brings us to last summer. Sales at Toys R Us had fallen for five years. Management hired lawyers to try to push off the company’s next loan payment. Word got out that the company might go bankrupt, and toymakers panicked.
One CEO, who asked to remain anonymous because he still does business with Toys R Us, was about to send millions of dollars worth of toys to the retailer.
“We were cancelling vessels,” he said. “We were doing everything we could to stop new goods getting on the water.”
Other toymakers demanded that Toys R Us pay them up front in cash. The retailer didn’t have it.
And that’s what drove the company to file for Chapter 11 bankruptcy in September. And in doing so, it joined a growing list of private equity-backed retailers to go bankrupt, including The Limited, Gymboree, Payless and Sports Authority.”
It should be no surprise to longtime collectors, but Target and Walmart do not take the same gambles that Toys R Us has, especially on collector focused items. And while those retailers, and others such as GameStop do stock items from some of the second and third tier toy companies, those selections are often far smaller than the larger display areas offered by Toys R Us. With the only toy focused competitor out of the way, and with Amazon taking a larger chunk of toy sales each year, there will be little that collectors can expect from Target and Walmart. The incentive to draw customers away from Toys R Us retail stores will no longer be there, and chances are they will simply focus their efforts on online sales (which Walmart has been doing for the last year plus).
As someone who has been involved in toys in some form or fashion for the last 20 years (from collecting, to reporting, to even helping design some items), this is a truly sad turn of events. The toy industry will never be the same once Toys R Us closes its doors. I shudder to think of the ripple effect, and which toy producers will be lost in the next few years as a result of this. R.I.P. Toys R Us.