Toys 'R' Us files for bankruptcy
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Toys 'R' Us Inc, the largest US toy store chain and a name most of us would associate with our childhoods, filed for bankruptcy protection on Monday (Sept 18).
According to consulting firm Kloster Trading Corp, Toys 'R' Us is the second-largest toy seller in the United States behind Amazon.
The company is saddled with debt from a US$6.6 billion (S$8.9 billion) buyout in 2005.
The Asian operations of Toys 'R' Us, including Toys 'R' Us Singapore, are not affected by the toy store chain's bankruptcy filing in the United States, its joint venture partner said on Tuesday (Sept 19).
Here are 6 things you may not know about the toy store:
1. IT WASN'T ALWAYS CALLED TOYS 'R' US
Charles P. Lazarus initially founded baby furniture store Children's Supermart in 1948. However, its focus slowly evolved to children's toys, and thus the store evolved into Toys 'R' Us in 1957.
2. THERE IS A BABY WING OF THE COMPANY
Babies 'R' Us at City Square Mall. PHOTO: BABIES "R" USIt is called Babies 'R' Us, a name one would find either very cute or highly unimaginative. It caters to parents of, well, babies, offering affordable products and services.
Its logo was multi-pastel coloured when it first started in 1996, but it has since changed to a fully purple one.
3. THE STORES IN SINGAPORE ARE NOT AFFECTED
The Star Wars section in Toys ’R’ Us' flagship store at Vivocity. PHOTO: TOYS 'R' USYay!
Operations outside of the US and Canada, including about 255 licensed stores and joint venture partnerships in Asia, are not part of the Chapter 11 filing, Toys 'R' Us said.
Toys 'R' Us Singapore is owned by Toys 'R' Us (Asia), a joint venture with Fung Retailing, part of Hong Kong's privately-held Fung Group. It has 11 stores in Singapore.
4. ITS MASCOT IS A GIRAFFE
In 1969, Dr G. Raffe was renamed Geoffrey the Giraffe, and became the official Toys 'R' Us spokesman. PHOTO: FACEBOOK/TOYS 'R' USThe lovable giraffe started out as Dr G. Raffe, and made its debut in 1957 in print advertisements for Children's Bargain Town, a toy store chain in the American Midwest that was later absorbed into the Toys 'R' Us chain.
In 1966, Toys 'R' Us was acquired by Interstate Department Stores, which owned Children's Bargain Town.
In 1969, Dr G. Raffe was renamed Geoffrey the Giraffe, and became the official Toys 'R' Us spokesman - or rather, its spokesanimal.
5. IT STARTED BECAUSE PEOPLE WERE HAVING MORE BABIES
Toys 'R' Us started by selling baby furniture before it expanded to older children's toys. PHOTO: INSTAGRAM/TOYS 'R' USToys 'R' Us found a market during the post-war era, where there was a baby boom following the end of World War II.
It started out providing baby furniture, but moved on to baby toys.
After that, it expanded to older children's toys.
6. KIDS WORLDWIDE KNOW IT
There are 875 Toys 'R' Us and Babies 'R' Us stores in the US, Puerto Rico and Guam, and over 765 stores internationally. PHOTO: INSTAGRAM/TOYS 'R' USIt has stores all over the world.
There are 875 Toys 'R' Us and Babies 'R' Us stores in the US, Puerto Rico and Guam, and over 765 stores internationally, along with over 245 licensed stores in 37 countries and jurisdictions.
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What comes next for Toys R Us?
Toys R Us faces an uncertain future as a massive US$4.9 billion debt forced the toy company to file for bankruptcy protection in US and Canada in late September.
The filing came as a surprise, and media reports stated that it could have been triggered by news that the retailer had hired restructuring lawyers, Kirkland & Ellis, to explore a number of restructuring options. That being said, it was not the first retailer to invoke Chapter 11, the likes of Gymboree, Payless, and BCBG having already filed for bankruptcy in the first half of the year.
While stores in Singapore and the region – which operate under a join venture company Toys R Us (Asia) – are not affected by this turn of events, questions still remain over the viability of the US based parent company.
Changing retail landscape
Toys R Us’ financial woes stemmed from the $6.6 billion sale to a group of investors including private equity firms KKR, Bain Capital and Vornado Realty Trust in 2005. Failure to make investments on online sales in a bid to better compete against rivals also contributed to the company’s downfall.
The company spent over US$100 million in recent years to bolster its e-commerce business, but had yet to bear fruit. Problems on the registry tool and a lack of a subscription feature were some of the other deficiencies that made it difficult for the retailer to compete against the likes of Amazon and Walmart.
Reports of potential bankruptcy filing came on the heels Toys R Us reporting three consecutive quarters of same store sales decline
The restructuring push also comes at a time when Toys R Us was feeling the full brunt of competition, as Walmart, Target and Amazon continued to encroach on its domain. The Wayne New Jersey-based retailer reported disappointing 2016 holiday sales on the back of aggressive promotional activities.
Toys R Us reported a net loss of US$164 million in the first quarter of the year, up from a net loss of US$126 million reported last year same quarter. Same store sales in the quarter were down by 4.1% compared to a 3.4% decline during the 2016 holiday season. The company had a total of US$301 million cash on its balance sheet as of the end of April 29.
A decline in same store sales also came at a time of increased popularity of electronic games apps. The emerging trend meant most people were not buying toys like they used to, significantly affecting Toy’s ability to ramp up sales in its retail stores.
Aggressive discounting from big box retailers Walmart and Target as well as a rise of e-commerce juggernaut Amazon had also contributed to the company’s troubles on sales.
Declining Credit Ratings
Prior to the bankruptcy filing, rating agency S&P Global had already pushed Toys R Us credit rating deeper into junk territory, after downgrading it to CCC+ from B-. The downgrade reflected the agency’s concern that the company’s owners could struggle to address debts set to mature in 2018.
“Still, with 2019 maturities looming and a lack of clear prospects for improving operating performance, we believe Toys’ capital structure may be unsustainable in the long term,” S&P global in a statement.
Credit rating firm, Moody’s on its part believed Toys R Us was still a competitive force in the toys business, even with a surge in financial woes. However, the firm warned that the company’s competitive position could come under pressure as the likes of Walmart, Target and Amazon continue to push for market share in the industry.
Restructuring may be the answer
A well thought restructuring plan should come into play if Toy R Us is to avoid any missteps that will continue to give its fierce rivals a competitive edge. Any plan, in this case, will have to address the company’s capital structure with a view of getting rid of expensive leases.
Toys R Us has sought to address some of its troubles by expanding its footprint into Asia in pursuit of new marketing opportunities. A move abroad could help the company offset a decline in same store sales in the U.S market, where competition is at levels never seen before.
The retailer has also started to downsize its real estate footprint as part of a cost saving strategy. The push has already lead to the closing a Time Square flagship store. Making stores a fun place for shopping is another strategy that Toys R Us is relying on, as it looks to trigger customer traffic to its outlets.
For a start, Toys R Us has secured commitment for up to $3.1 billion in debtor-in-possession financing from its lenders, including JPMorgan Chase & Co. The company also plans to spend up to US$1 billion to revamp its large format stores.
One of the reasons why the company may not collapse entirely is the fact that the larger toy industry is rooting for it to succeed. The top 10 biggest toy manufacturers rely on the retailer for sales, and the demise of the retailer is not something they would wish to see.
Toys R Us’ future also depends on what its CEO, Dave Brandon decides to do going forward. Brandon previously worked at private equity firms, Domino Pizza, among other companies, and is seen as the right guy to steer the company from the current mess.