September 19, 2017 at 3:18 AM
Toys “R” Us announced late Monday night that it filed for Chapter 11 bankruptcy protection, though the company’s leadership assured customers its 1,600 stores around the world would continue to operate normally. The company, once America’s powerhouse of toys, has been struggling for years even as the toy industry grew.
Instead, it plans to restructure the $5 billion of long-term debt with which the company is saddled in hopes of keeping it afloat in a marketplace that has vastly changed with increased competition from both big box stores such as Walmart and Target, and online retailers such as Amazon.
CEO Dave Brandon called the filing the “dawn of a new era” in a news release.
“We are confident that these are the right steps to ensure that the iconic Toys’R’Us and Babies’R’Us brands live on for many generations,” Brandon added.
He also assured customers that both its physical and online stores would be open for the coming holidays, “and our team members around the world look forward to continuing to put huge smiles on children’s faces.”
Charles Lazarus opened the first Toys “R” Us in Rockville, Md., in 1957 after running a baby furniture store named Children’s Bargain Town in his hometown of Washington. The “R” in the logo was backward, so it would seem like a child wrote it, according to the company’s website.
That logo and the company’s mascot, a cartoon giraffe named Geoffrey, which first appeared in a television commercial for the toy store in 1973, quickly become known worldwide. Geoffrey had lived a previous life though, as Dr. G. Raffe, the mascot for Lazarus’s first store.
The company grew coast to coast and then globally to the 1,600 locations it occupies today. It purchased one of its biggest competitors, FAO Schwarz, in 2006.
But, alongside so many other big brands, such as Payless ShoeSource, it fell victim to the shift from brick-and-mortar stores to online retailing.
Amid a long decline, the company was sold to a team of private equity firms and a real estate developer — Kohlberg Kravis Roberts, Bain Capital Partners and Vornado Realty Trust respectively — in 2005. Many suggested the deal was more about the real estate owned by Toys ‘R’ Us and Babies ‘R’ Us stores, than about the shrinking businesses themselves.
The deal, though, presented a significant fallout for Toys ‘R’ Us: the assumption of $7.5 billion in debt, Bloomberg reported. While the company somewhat clawed its way out of this debt, the bankruptcy filing will allow a financial restructuring to better address it.
The company also struggled to remain relevant in an age when board games and Barbie dolls can be purchased with a click of a mouse, often at lower prices than in stores. Or they can be bought in one-stop shops like Walmart or Target alongside groceries and household goods, at a fraction of the price. There wasn’t necessarily a compelling reason to visit a Toys ‘R’ Us.
When Brandon took over in 2015, the company’s debt totaled the $5 billion it does today — and only 10 percent of its sales came online.
The CEO, who guided a successful turnaround for Domino’s Pizza the previous year, had a plan: Make shopping at Toys ‘R’ Us an exciting experience. Let kids fly drones around the ceiling and test out Nerf guns in the aisles. Have events, such as Pokémon card trading sessions. Get more toys out of their boxes. Add video screens and sound effects.
Toys, after all, are made for play.
“The biggest change you are going to see over the next year is that we want to bring our toy stores to life. I want kids to be dragging their parents to our stores because they want to see what’s going on at Toys ‘R’ Us this weekend,” Brandon told Bloomberg. “I want kids to come in here and not know where to go next because there are so many things going on.”
He wasn’t the only one who considered this strategy. CNBC’s Carol Roth, for example, argued in 2013 the company “needs to give kids and their parents a reason to need to go to the store or to use its website, above and beyond the draw of its current toy offerings. … While it used to be entertainment to shop the store, now with so many other sources of entertainment, there is no critical pull into the Toys R Us store.”
But it didn’t work. The company’s sales sank 1.4 percent in 2016, even though the toy industry as a whole saw a 5 percent increase in sales, The Washington Post reported.
With Monday’s filing, Toys ‘R’ Us joins a several other brands — such as Payless ShoeSource, Macy’s, J.C. Penney, RadioShack and The Limited — that once seemed invincible but are now financially distressed. This steep decline of traditional brands in the United States has been dubbed the “retail apocalypse” by some.
Judging from Internet reaction, though, many consumers have fond memories of the toy giant. The mere idea of the company filing bankruptcy caused many to take to Twitter in mourning.
One user wrote that Toys “R” Us is “The only store to suffer from the retail apocalypse that brings me pain.”
Many seemed to think the company was closing down, which is not the case, at least not yet.
“I know it’s a big box store, but walking around Toys R Us as a kid was like going to Disney World,” one user wrote. “Can’t imagine it gone.”
“This is absolutely disappointing,” wrote another user. “Toys R Us is going bankrupt before the holidays. This is just horrible.”
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