- Toys R Us has filed for bankruptcy protection in the US and Canada after running up $5bn (£3.7bn) of debts and struggling to compete in the age of internet shopping.
The world’s largest toy store chain said it had filed for Chapter 11 to restructure its debts and work out a sustainable path for its finances that would allow it to invest in long-term growth.
The New Jersey-based company, which employs 64,000, said the vast majority of its 1,600 stores around the world were profitable, adding that its businesses outside North America, including the UK, were not affected.
Video games are to blame It was not very often that I was allowed to go to Toys-R-Us as a child; we did not have any money for things like toys. When my mom and dad finally knuckled under and got a TV (black and white, 13") when I was 13, the Toys-R-Us commercials were the highlights of the fall and winter. Amazon, Wallmart and Gamestop finally kicked them down. I did not realize that they used to be the #2 retailer of computer software.
I mean, the article says the majority of their stores turn a profit, which can actually be a hard feat these days. That said, I kind of have a chip on my shoulder about Toys R Us. They choked out a lot of mom and pop toy and hobby stores in addition to other brands like KayBee and FAO Schwarz (both of which it bought up the desiccated corpses of). I have a few friends that work for Toys R Us and for the most part, they like their jobs, which is also a feat in retail these days, so I hope their strategy works. That said, I walked through one recently to meet up with one of my said friends as they were getting off work and I gotta tell you, with the exception of an amazing LEGO section, it's nowhere near as cool as when I was growing up. Toys these days are kind of lame.
I never got to go into a KB Toys as those were mall stores. The scruffy little hooligans that I hung out with back then would not be caught dead in a mall, assuming that security didn't throw us out first. From the articles it looks like Chapter 11 is a hedge against the loans they have due next year. I wonder if they are anticipating a poor holiday sales season.
Under bankruptcy they have 90 days to emerge profitable. 80 percent of their sales are the Christmas season. They were holding out as long as they could, hoping to make it to December 27. They're a week shy. And they're five Billion. Dollars. In debt. They haven't been paying their vendors half an aircraft carrier's worth. Let that sink in for a minute. Retail vendors extended Toys'r'us enough credit to buy five stealth bombers. To shoot Avatar ten times over. To pay for three weeks of the Iraq War. I suspect we're about to find out if a retailer can be too big to fail.
That doesn't sound right. If that majority of their stores are profitable, closing them would only hurt their chances at recovery. If I had to guess, it's not their lack of income that's holding them back, it's their inability to pay off their debts. Hence, the filing for bankruptcy. I mean, if I were running that company, the last thing I'd do is close any stores without a clear game plan and good reasons why. Part of the reason why companies prop up unprofitable stores is to keep competitors at bay, yes, but the other part of the reason is that closing stores is a long and expensive process, especially if you have to cancel leases and contracts. If a store is losing your company only $35k a year for instance, but closing it would cost you $100k, it might be prudent to just hold onto it for another year or so and see if it's possible to turn things around.
This is an American, publicly traded company we are talking about. Figure out the most reasonable, sensible, long range goals that will generate profits and income for a decade or more, and do the exact fucking opposite in order to maximize the next quarterly report to Wall Street.
Well, fuck me Bain Capital owns 1/3 of them. AKA Mitt Romney's hedge fund. Huh.
Yeah I've been scratching my head trying to figure out how the fuck Toys 'R Us of all places ends up in FIVE BILLION DOLLARS of debt before somebody says "huh, better declare bankruptcy". As opposed to, like, $700 million or something less stupidly large. Is it leveraging debt/asset ratio to say "nuh-uh, we're totally solvent!"?
. . . I suspect we're about to find out if a retailer can be too big to fail. When you put it that way, it's kind of like GM and Chrysler, huh? Toys R Us is a big company by itself, but at the same time, they buy so much from vendors (which is part of how they could get a debt that big, because Toys R Us is probably their main customer) that if Toys R Us falls, a lot of vendors will too. Amazon, Wal-Mart, and their copycats probably don't have near the amount of demand for the same products Toys R Us does. Then again, it might bring back mom and pop toy stores. After Borders shut down, indie bookstores slowly started to make a come back.And they're five Billion. Dollars. In debt. They haven't been paying their vendors half an aircraft carrier's worth.
Toys'r'Us lives on because Mattel and Hasbro can't let it die 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. The retailer of last resort, ladies and gentlemen.
Very interesting article. It has me wondering now if it would be possible for companies like Hasbro, Mattel, and MGA to leverage some of their debt to buy part of Toys R Us. Not that that'd necessarily be a good idea, but it'd probably make for an interesting experiment. Kind of like how, sometimes bakers unions buy a brand so they have a distinct product they can all sell and control, instead of catering to whatever brands that hire them.
This is called vertical integration and is subject to the Clayton Antitrust Act. Not to say it doesn't happen, not to say it's always illegal, but it's one of those warning signs that, back in the days of fair business practices, made lawyers itchy.
Huh. Living in the shadow of NYC for so many years I never realized this, but it appears to be true: You could definitely poke holes in this article's oversimplified argument but still cool.After Borders shut down, indie bookstores slowly started to make a come back.
According to the American Booksellers Association, the number of member independent bookstores has increased more than 20 percent since the depths of the recession, from 1,651 in 2009 to 2,094 in 2014. Meanwhile, Borders went bankrupt in 2011, and the fate of Barnes & Noble, which failed to make the Nook into a viable e-reader competitor with Amazon’s Kindle, appears murky.
The short answer is that by listing their shares as public companies, both Borders and Barnes & Noble were drawn into a negative vortex that destroyed the former and has crippled the latter. Not only did they become public companies, but they positioned themselves as high-growth companies, focused on innovation and disruption. That forced them to compete with the growth company par excellence in their space: Amazon. It also forced them to pursue high sales volume at the expense of inventories. Those strategies, as it turned out, were precisely wrong for the actual business they were in: selling books to a selective audience. Which is precisely what independent bookstores are good at.