Toys 'R' Us Gets Ready For Holidays By Filing For Chapter 11

Filing for Chapter 11 bankruptcy protection late last night “marks the dawn of a new era” for Toys “R” Us, according to its chairman and CEO, Dave Brandon. With $3 billion in fresh loans, the once-dominant retailer has figured out a way to restructure its $5 billion in debt to pay employees and suppliers but it has a ways to go in stemming the tide that swamped it in the first place: Amazon. 

“We are confident these are the right steps to ensure that the iconic Toys ‘R’ Us and Babies ‘R’ Us brands live on for many generations,” says Brandon in a statement. The filing was made in U.S. Bankruptcy Court for the Eastern District of Virginia in Richmond, Va., but was not yet filed in its online database as of 6:45 a.m.

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The “vast majority” of the retailers’ 1,600 stores around the globe are profitable, according to the company, and everything will continue to “operate as usual” — including customer loyalty programs such as Rewards “R” Us, Geoffrey’s Birthday List and Babies “R” Us Registry. And, in a letter to its customers, it touts its newly launched www.toysrus.com and www.babiesrus.com web stores as viable options to trekking to the mall.

But “as part of the restructuring process, Toys ‘R’ Us plans to close some underperforming stores, according to people familiar with the matter," report Lillian Rizzo and Suzanne Kapner for the Wall Street Journal. “Its remaining locations would be reconfigured to be more experienced-based, incorporating amenities such as in-store play areas, they added.” 

The retailer has been, for decades, “the country’s preeminent toy retailer, with a towering flagship in New York’s Times Square and a ubiquitous icon, Geoffrey the Giraffe. In 2006, it purchased competitor FAO Schwarz, but eventually closed its iconic New York store on Fifth Avenue, citing high costs,” writes Abha Bhattarai for the Washington Post.

“Toys ‘R’ Us joins a wave of retail bankruptcies this year, including the children’s clothing retailer Gymboree, Payless ShoeSource and rue21, which sells clothing for teenagers. Other retailers have closed thousands of stores and laid off tens of thousand of workers as they try to cut costs and compete with e-commerce,” writes Michael Corkery for the New York Times.

Toys ‘R’ Us’ “move comes on the cusp of the all-important holiday season, a period in which many retailers earn nearly half of their annual revenue, and a time of year that is particularly lucrative for the giant toy seller. The filing was long in the making,” writes Charisse Jones for USA Today, linking to an analysis by colleague Joan Verdon.

“The filing also strikes at the heart of one of the nation's most iconic retailers, a household name for more than a generation. Toys ‘R’ Us pioneered big-box toy retailing generations ago, a national chain that displaced many smaller, neighborhood toy stores,” Jones continues.

Drilling down into the nitty-gritty, CNBC’s Lauren Hirsch reports “the bankruptcy filing helps the Wayne, N.J.-based toy retailer relieve itself of the debt left over from its $6.6 billion acquisition by Kohlberg Kravis Roberts, Bain Capital Partners and real estate investment trust Vornado Realty Trust in a 2005 deal valued at $6.6 billion. 

“The retailer has $4.9 billion in debt, $400 million of which has interest payments due in 2018 and $1.7 billion of which is due in 2019.”

Kirkland & Ellis LLP is serving as principal legal counsel to Toys “R” Us, Alvarez & Marsal is serving as restructuring advisor and Lazard is serving as financial advisor. 

“The retailer said that it has already received a commitment from some lenders, including a JPMorgan-led syndicate, for over $3 billion in debtor-in-possession financing,” Hirsch reports, subject to court approval.

The bankruptcy filing “brings to a close a turbulent chapter in the iconic company’s history,” GlobalData Retail managing director Neil Saunders tells the WaPo’s Bhattarai, in an email. “Even if the debt issues are solved, Toys ‘R’ Us still faces massive structural challenges against which it must battle. The jury is out as to whether it can adapt enough to survive.”

Also still out is its main competitor, and it’s very much on the move. According to a January 2017 report by One Click Retail, “Amazon’s share of the entire U.S. domestic toys market reached a whopping 20% in 2016, an impressive number for any retailer let alone an online-only marketplace.” 

And what exactly is keeping its wing number of Pop-Ups from stocking 3-in-1 Sports Zone or Doc McStuffins All-in-One Nursery?

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