Toys “R” Us is officially going out of business in the U.S. The retailer filed court documents early Thursday seeking bankruptcy court approval to liquidate its inventory, start closing nearly 800 U.S. locations, and selling its equity interest in its Canadian operations.
The company’s lenders “have determined that the best way to maximize their recoveries is to liquidate the existing inventory in all [of Toys “R” Us’] 735 remaining U.S. stores and begin an orderly wind-down of the U.S. operations.”
“I am very disappointed with the result, but we no longer have the financial support to continue the Company’s U.S. operations,” says Dave Brandon, chairman and chief executive officer of Toys “R” Us. “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.”
Toys “R” Us 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.
Toys “R” Us is also likely to liquidate in France, Spain, Poland, and Australia. The previously announced administration of the UK business continues. It plans to sell its operations in Canada, Central Europe—including Germany, Austria, and Switzerland—and Asia.
The company is also trying to package its Canadian business with 200 U.S. stores and find a buyer. Toys “R” Us 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.
Yesterday, MGA Entertainment’s (MGA) CEO, Isaac Larian, and affiliated investors made a bid for the Toys “R” Us Canada operations, a spokesperson for MGA confirmed. The group may also perform due diligence on Toys “R” Us in the U.S., according to a report from Bloomberg.
“This is a profoundly sad day for us as well as the millions of kids and families whom we have served for the past 70 years,” Brandon said.
According to the filing, a combination of factors contributed to the demise of the company, including diverse competitors such as Target, Walmart, and Amazon; not being able to keep up with prices and the inability to offer online prices or shipping like their competitors; and a greater than expected decline in toy and gift card sales following its initial bankruptcy Chapter 11 filing.
“Toys “R” Us’ announcement that it will be closing U.S. and UK stores, while not wholly unexpected given the retailers many years of declining sales, will have a major impact across the toys and games landscape,” says Matthew Hudak, Senior Toys and Games Analyst at Euromonitor International. “Toy makers, while they have been slowly moving to other channels for sales over the years, will quickly lose a major avenue to get their product to consumers. Larger toy companies like Lego, Hasbro, and Mattel will likely see a greater impact, as they were a sizeable portion of the Toys “R” Us store offering. Smaller players, especially for areas like games and puzzles that get a lot of niche new products each year, can typically rely more on specialty shops and online channels and therefore might not see as immediate an impact. Long term, however, large players will likely get even more competitive for remaining in-store shelf space, especially in hypermarkets like Walmart, which ultimately could limit the national path to consumer for many new toys from smaller players. In addition, it would not be surprising that in this new environment with less shelf space to work with, smaller or mid-size toy companies consolidate faster to help their bargaining position.”
Many in the toy industry predicted the retailer’s fate would eventually happen when it first filed for Chapter 11 bankruptcy back in September.
“While the news is a gut check to legacy retailers that are struggling to adapt to modern retail realities, this is not a development that comes as a surprise,” says Tim Barrett, Senior Retailing Analyst at Euromonitor International. “In an age where shopping for toys is more efficient online or at Walmart, a big-box toy retailer with next to nothing in terms of service or experience doesn’t make a lot of sense. Had the chain embraced e-commerce earlier instead of outsourcing it to Amazon from 2000-2010, things might have gone differently. Had the chain made a bold move to reimagine stores, perhaps by adding in daycare centers, things might have improved. But Toys “R” Us did none of these things. Spread thin across too many countries, with too many stores and too much debt, it boxed itself into its current fate.
“One interesting wrinkle to consider will be the impact on the rest of the market,” Barrett continues. “Amazon, Walmart, and Target are clear winners, possibly along with friendly local toy and game stores, but that is fairly obvious. In the next year, it will be interesting to see if the release of Toys “R” Us’ inventory into the market depresses toy sales for other retailers. This is likely good timing for them due to the distance from Christmas, but the demand for off-price items and discounts is pervasive, and it’s this sort of mass disbursement that third party online sellers will take advantage of, much to the chagrin of larger retailers that try to abide by a MAP.”
