Commentary

Barbie, Ken Mourn Toys R Us As It Prepares To Liquidate

Toys R Us formally announced early today it is preparing to liquidate the company and shutter or sell its 735 remaining stores in the U.S., leaving about 33,000 retail workers looking for new jobs and shoppers across the country reacting as Jennifer Gay did to WMCActionNews5 in Memphis when news of the impending action leaked out: “It's kind of upsetting. This is where I go for birthdays and Christmas and all kinds of holidays.”

CEO David Brandon also “delivered the company’s fate to workers at its Wayne, N.J., headquarters. The company filed liquidation papers Wednesday evening in advance of a bankruptcy court hearing on Thursday,” write Paul Ziobro and Lillian Rizzo for the Wall Street Journal.

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“‘I have always believed that this brand and this business should exist in the U.S.,' Mr. Brandon said on a follow-up conference call with staff, adding that he guarantees that vendors who failed to support the retailer during the holidays, customers who shopped elsewhere and media who chronicled the chain’s downfall will miss the retailer.

“‘The constituencies who have been beating us up for months will all live to regret what’s happening here, Mr. Brandon said,’” Ziobro and Rizzo report.

Meanwhile, “a group of toymakers led by Isaac Larian, chief executive of MGA Entertainment, the giant behind brands such as L.O.L. Surprise!, Little Tikes and Bratz, on Wednesday submitted a bid to buy Toys R Us’s Canadian arm, which includes 82 stores, according to Larian,” reports Abha Bhattarai for the Washington Post. “He added that he is also looking into buying as many as 400 U.S. stores, which he would seek to operate under the Toys R Us name.”

CEO Brandon, “who oversaw a turnaround at Domino’s Pizza, took over the top job at Toys R Us in 2015, and he initially bought time for a turnaround with a financial overhaul that put off some of its debt maturities. The affection of shoppers was still there, but he saw that service was spotty and shelves were sometimes empty. The chain also was losing touch with the next generation of parents, and he went scouting for smaller locations in New York and other cities that the chain had abandoned because of high rents,” write Bloomberg’s Matthew Townsend and Rick Green.

“When it comes to all those millennials who want to live in those urban centers, we’re nowhere,” Brandon said in a 2016 interview with Townsend.

The liquidation “ends a chapter started by Charles P. Lazarus, the son of a bicycle shop owner, the store’s visionary, who wanted the ‘R’ written backwards — an ode to childlike scrawl,” writes CNBC’s Lauren Hirsch, who broke the news that bankruptcy might come for the 70-year old chain last September.

“It is a blow to the toy industry, which has relied on the retailer for supplying row after row of toys and premium pricing, and who now must look to big box stores and Amazon,” Hirsch continues. “It is a black-eye for its its three owners, KKR, Bain Capital Partners and real estate investment trust Vornado Realty Trust, who took the retailer private in 2005 for $6.6 billion, leaving it with $4.9 billion in debt.”

“Toys R Us hasn’t been able to tread water as the tides have shifted in the vast retail ocean,” Mark Cohen, director of retail studies at Columbia University’s Graduate School of Business, tells Denise Dahlhoff, research director at Wharton’s Jay H. Baker Retailing Center, on the Knowledge@Wharton podcast. 

“Retailers today, especially in any kind of fashion or trend segment, have to progress,” Cohen said. “They have to morph, they have to modify. They have to represent the changes in the marketplace and their customers’ behavior. Toys R Us has never been able to wrap their arms around the changes necessary, and this is the inevitable outcome.”

"He said the stores were too big, jammed full of inventory, poorly merchandised, and customer service was virtually nonexistent. A poor shopping experience won’t entice busy consumers who would rather grab a toy from Target while they fill their carts with groceries, school supplies and the rest of life’s necessities,” reads a blog post summary of the 25-minute discussion.

In a letter to acting chairwoman Maureen Ohlhausen, U.S. Senate minority leader Charles Schumer (D-NY) asked the Federal Trade Commission “to ensure that consumers have time to use their existing gift cards before Toys R Us closes up shop.” 

“SCHUMER: TOYS R US IS IN SERIOUS THREAT OF CLOSURE & MAY SOON SHUTTER, LEAVING CONSUMERS STUCK WITH USELESS GIFT CARDS; SENATOR SAYS COMPANY MUST ALLOW CONSUMERS TO TURN THOSE GIFT CARDS BACK INTO CASH BEFORE IT’S TOO LATE; MANY CONSUMERS GIFTED TOYS R US CARDS THIS PAST HOLIDAY SEASON & SHOULD NOT BE LEFT HOLDING THE BAG IF THE DOORS CLOSE AND SHELVES GO BARE,” reads one of the horsiest headlines above a press release ever to emerge from the swamp. 

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