Crushed By Debt And Online Rivals, Toys ‘R’ Us Seeks Bankruptcy

Thanks to a crushing debt load from a previous buyout and relentless competition from warehouse and online retailers, the once-dominant specialty retailer and ultimate toyland for a generation of post-war baby boomers – Toys “R” Us Inc., filed for bankruptcy.

The gravitational pull of Amazon.com Inc., which has revolutionized the way people consume with affordable online offerings and global home delivery service, store closures and sluggish mall traffic are the ailments that the brick-and-mortar retail industry has been reeling from and the bankruptcy filing is the latest blow in that series.

Using the Chapter 11 process to close underperforming stores and expand online operations, and including Payless Inc., Gymboree Corp. and Perfumania Holdings Inc., a dozen-plus major retailers have filed for creditor protection this year.

According to data provided by CoStar Group, in the coming years, nearly 1 billion square feet, may need to be closed, converted to other uses or renegotiated for lower rent which is more than 10 percent of U.S. retail space.

Even as retailers and suppliers are ramping up for the all-important holiday shopping season, the troubles at Toys “R” Us come as a shocker. In an emailed statement, Mattel Inc. said, “As one of our most important retail partners, we are committed to supporting Toys ‘R’ Us and its management team as they work through this process, particularly as we approach the holiday season.”

Especially for Chinese toy manufacturers, there can be global implications of the bankruptcy filing by the company. In the latest fiscal year, some 38 percent of the company’s revenue came from overseas markets. “It’s a loss for the long-term benefit of the entire industry,” said Lun Leung, chairman of Hong Kong-based Lung Cheong Group, a toy supplier for Hasbro Inc. He said Toys “R” Us accounted for less than 5 percent of the group’s sales.

In the Chapter 11 documents submitted Monday at the U.S. Bankruptcy Court in Richmond, Virginia, the company listed debt and assets of more than $1 billion each. According to the company statement, including a JPMorgan Chase & Co.-led bank syndicate and certain existing lenders to fund operations while it restructures, prior to filing, the chain secured more than $3 billion in financing from lenders. The funding is subject to court approval.

The company said its locations across the globe would continue normal operations and didn’t announce plans to close stores.

“Like any retailer, decisions about any future store closings – and openings – will continue to be made based on what makes the best sense for the business,” Michael Freitag, a spokesman for Toys “R” Us, said in an email.

Seeking to make shopping there a more enjoyable experience, Chief Executive Officer David Brandon took over Toys “R” Us in 2015. A vision of kids “dragging their parents to our stores because they want to see what’s going on” was set out by him last year.

“Together with our investors, our objective is to work with our debtholders and other creditors to restructure the $5 billion of long-term debt on our balance sheet,” Brandon said in the company statement.

(Adapted from CNBC)

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