Toys ‘R’ Us Inc., the famous toy retailer founded in 1948, announced Thursday it is liquidating the majority of U.S. stores after failing to find a buyer or reach a restructuring agreement with creditors. Employees and investors are shocked as the closure of a couple hundred stores has now multiplied to all 700 U.S. locations, barring a last-minute sell-off of the 200 highest performing stores with the Canadian branch of operations.
Six months ago, Toys ‘R’ Us CEO David Brandon laid out a plan to use Chapter 11 bankruptcy to restructure the nearly 5 billion in debt that has been accumulated by the company. The debt spiraled out of control when the company had been taken private by Bain Capital and other firms in 2005. The restructure plan aimed to invest in online sales, customer experience, and interactive play space.
The September timing of the bankruptcy right before the holiday season was catastrophic for sales, unnerving customers about returns and the validity of Toys ‘R’ Us gift cards. Spooked suppliers worried about being paid back, which hindered inventory and sales. The company’s downfall was cemented when online competitors Target, Walmart, and Amazon sold toys at the same price or at a loss to drive traffic. While these other retailers could afford to take a hit in the toy category, Toys ‘R’ Us missed out on holiday sales, a huge portion of their yearly earnings.
Although Toys ‘R’ Us will continue on in name, possibly a handful of U.S. stores, and in international markets, the future for brick-and-mortar specialty retailers looks bleak in the face of online competition. As Walmart, Target, and Amazon offer free one or two day shipping, it squeezes big-box chains and forces them to strategize as an icon of retail crumbles.
