Toys 'R' Us About to File for Bankruptcy Before Holidays

[CCarter]

End of an Era...

Follow up to the Holiday Marketing thread, it looks like there will not be a major player this year, Toys R Us is almost done - a victim of Amazon.

Toys “R” Us Inc., which has struggled to lift its fortunes since a buyout loaded the retailer with debt more than a decade ago, is preparing a bankruptcy filing as soon as today, according to people familiar with the situation.

The Chapter 11 reorganization of America’s largest toy chain would deal another blow to a brick-and-mortar industry that’s already reeling from store closures, sluggish mall traffic and the threat of Amazon.com Inc.

[..]

With speculation of a bankruptcy mounting, shares of Toys “R” Us’s vendors tumbled on Monday. Mattel Inc., the maker of Barbie and Fisher-Price, fell 6.2 percent -- its worst decline in seven weeks. Shares of Hasbro, the company behind Monopoly, Nerf and Transformers, dropped 1.7 percent.

[..]

S&P Global Ratings and Fitch Ratings both downgraded the toy seller Monday, citing media reports and market data pointing to an increased possibility of a broad restructuring. S&P cut its rating to CCC-, the third-lowest level. It had the retailer rated B- just two weeks ago, and Moody’s Investors Service still has a B3 rating and stable outlook for the name.

Much of the toy supplier’s debt is the legacy of a $7.5 billion leveraged buyout more than a decade ago. In 2005, Bain Capital, KKR & Co. and Vornado Realty Trust loaded Toys “R” Us up with debt to take it private. Since then, the Wayne, New Jersey-based chain has struggled to dig itself out.

[..]

“With these debt levels, how much actual flexibility do you have in this environment?” asked Charles O’Shea, who covers Toys “R” Us for Moody’s Corp. “You have to invest online -- because your principal competitors there are really good -- and you’ve got to deal with the debt load and your maturities on top of that. The pie is only so big.”

Sauce: https://www.bloomberg.com/news/arti...id-to-plan-bankruptcy-filing-as-soon-as-today
​

A couple of things about this that are interesting is they know they are in a price war, and the online competition is extremely strong. On top of that they haven't taken advantage of their online presence as they should have - that's the kind of thinking that got the dinosaurs into trouble.

Basically they didn't take the Internet serious - well at the very least they had a situation where they screwed up.

All things must come to an end.

 

[intent]

A couple of things about this that are interesting is they know they are in a price war, and the online competition is extremely strong. On top of that they haven't taken advantage of their online presence as they should have - that's the kind of thinking that got the dinosaurs into trouble.

Basically they didn't take the Internet serious - well at the very least they had a situation where they screwed up.

All things must come to an end.

Reminds me of Blockbuster's demise.

 

[darkzerothree]

At least in Germany, their online presence was shite...

Select "3-5 year old, girl" get toys geared towards boys age .5yrs to 9. The ONLY thing saving them was the price. Not a good position to be in.

 

[Kris]

I think there's only one store left in my city and they downsized a while ago. Definitely a case of not keeping up with changes in the market.

 

[backwoods]

​

All things must come to an end.

Note, it's not really the end. Toy's R Us aren't closing and will still be open as normal.

They received more than $3 billion in debtor-in-possession financing from J.P.Morgan Chase and other lenders, which will help it sustain operations during the bankruptcy process.

They are profitable but that leveraged buyout back in 2005 was detrimental. Will be interesting to see their game plan once the debt is erased and they are a lean operating company.

 

[CCarter]

Note, it's not really the end. Toy's R Us aren't closing and will still be open as normal.

That's not the problem - they still do not have an answer to their online erosion - that's the death I'm referring to. It's very difficult to come back without a serious game plan to answer the constant encroachment of Amazon and their own vendors using the internet; And if they are waiting till this late in the game... well... They are just now talking about doing a subscription model and doing a loyalty program for moms through their Babies R Us brand, however that brand is getting hammered by Amazon's Diapers.com and Amazon itself already. It's way too late for Babies R Us and that seems to be one of their hopes.

They are profitable but that leveraged buyout back in 2005 was detrimental. Will be interesting to see their game plan once the debt is erased and they are a lean operating company.

That debt isn't the real problem.

"Debt tightens a company.'' - Henry Kravis, Co Founder of KKR - which owns Toys R Us.

They've had the debt for a long time - even when excluding the debt their profitability is still declining and market share shrinking. The debt may look like the catalyst but it's not the reason for their shrinking bottom line. The reality is they haven't kept up with the competition when they could have.

Several of their vendors like Lego recently announced 1,400 layoffs last week - it wasn't because of Toys R Us, they too are a dinosaur not thinking about the future.

There has been a generational shift -kids are playing with electronics now, on smartphones, more so than any other generation and Toys R Us doesn't have exclusivity like they did in the past. I remember when I bought my Super Nintendo and Nintendo - I could only get it at Toys R Us - now, anything is a couple of clicks away from a smartphone, not even a desktop computer.

Unless they switch to "experiences" like restaurants, which I don't see them even comprehending that concept they are going to go the way of the American mall.

All things must come to an end... This is Toys R Us's nexus point, I doubt they'll come out of it.

 

[eliquid]

The stores are complete shit.

I remember walking into them as a kid.. it was mountainous rows of toys. People would get lost in them. I would spend hours in them paying with shit.

When my kids were born, we went to a few to get baby stuff and some toys and its basically a shell of what it use to be and this was 10 years ago. Most of the crap in there was baby clothes in the Toys R Us with an area for a jumpy house and then a few slim aisles with toys. It was nothing like it use to be. It basically looked like a used flea market inside.

I knew this place was going to go bankrupt soon once I saw that.

Amazon is crushing everyone. The ones that haven't closed down will soon enough.

Walmart+Jet is another contender, although I feel Amazon is vastly superior and ahead of the game by eons.

Nothing is safe. Even the people selling on Amazon are not safe. If you don't know what I mean, you will soon enough.

If AliExpress/Alibaba could up their game a bit more faster, I think Ali + Amazon could really put a hurt on Walmart to where they would have to close down a ton of stores in each city.

 

[backwoods]

That's not the problem - they still do not have an answer to their online erosion - that's the death I'm referring to. It's very difficult to come back without a serious game plan to answer the constant encroachment of Amazon and their own vendors using the internet; And if they are waiting till this late in the game... well... They are just now talking about doing a subscription model and doing a loyalty program for moms through their Babies R Us brand, however that brand is getting hammered by Amazon's Diapers.com and Amazon itself already. It's way too late for Babies R Us and that seems to be one of their hopes.



That debt isn't the real problem.

"Debt tightens a company.'' - Henry Kravis, Co Founder of KKR - which owns Toys R Us.

They've had the debt for a long time - even when excluding the debt their profitability is still declining and market share shrinking. The debt may look like the catalyst but it's not the reason for their shrinking bottom line. The reality is they haven't kept up with the competition when they could have.

Several of their vendors like Lego recently announced 1,400 layoffs last week - it wasn't because of Toys R Us, they too are a dinosaur not thinking about the future.

There has been a generational shift -kids are playing with electronics now, on smartphones, more so than any other generation and Toys R Us doesn't have exclusivity like they did in the past. I remember when I bought my Super Nintendo and Nintendo - I could only get it at Toys R Us - now, anything is a couple of clicks away from a smartphone, not even a desktop computer.

Unless they switch to "experiences" like restaurants, which I don't see them even comprehending that concept they are going to go the way of the American mall.

All things must come to an end... This is Toys R Us's nexus point, I doubt they'll come out of it.

Yes, obviously there were many factors working against Toys R Us but the massive debt load was the catalyst that sent it into BK. After paying interest on that massive $5B+ debt load they had little to invest and improve the business and reinvent itself. It was a terrible debt structure deal. While every major retailer like Target, Wal-Mart, Amazon, etc., was spending billions on improving their ecommerce experience and technology over the last decade Toys R Us was somewhat stuck to do nothing.

The toy and baby category is so massive that they can survive if the right changes are made. Not everyone wants to order it online and wait days for the product. And a lot of times I have found Amazon doesn't carry it or some 3rd party merchant has it with bad ratings for the same price as Toys R Us has it stocked locally. When shopping for toys for my daughter, they often had that hard to find item.

Toys R Us needs to differentiate itself and keep focused on the depth and selection of merchandise and improve on the in-store experience. Probably will need to thin out a few stores as well.

Best Buy was suffering from a lot of the same type of price wars and competition issues. In 2012 the stock tanked to $11 and has since had a major comeback with a new CEO who understood what needed to improve and change.

Can it turn around like Best Buy has after it's decline? Who knows. Toys R Us brought in a new CEO just 2yrs ago and he has an impressive track record of helping troubled companies and was part of the Domino's pizza success story. While kids behaviors and wants have and will always be changing the toy and baby market isn't going away. This is about getting the right leadership on board. Will certainly be interesting to watch...

 

[backwoods]

Nothing is safe. Even the people selling on Amazon are not safe. If you don't know what I mean, you will soon enough.

Can you elaborate? What time-frame? Are you referring to AmazonBasics, Chinese sellers, etc. as threats? ... or something else?

 

[eliquid]

I actually got a gag order put on me a few days ago about this..

I cant talk about it now. Sorry

 

[backwoods]

I actually got a gag order put on me a few days ago about this..

I cant talk about it now. Sorry

Curious if you can speak on the Amazon details now?

 

[CCarter]

I honestly thought they were done a while back, I'm surprised they made it for another 6 months...

Toys ‘R’ Us could go out of business next week: reports

Toys "R" Us recently went into administration in the UK, paving the path for stores there to shut their doors. And the potential closing of Toys "R" Us in America would be a particularly huge blow to Hasbro and Mattel.

According to recent regulatory filings from both companies, Toys "R" Us accounted for nearly 10% of the companies' overall sales.

Toys "R" Us is the last megastore dedicated to toys. Without it, toymakers will struggle to promote anything but their most popular items.

[..]

Hasbro reported a decline in sales during the fourth quarter, despite the fact that the Nerf and My Little Pony owner now holds nearly all of the lucrative licenses tied to movies from Disney and its many other studios -- Pixar, Marvel and Lucasfilm.

Hasbro said that Star Wars product sales actually fell in the fourth quarter, as did sales of Disney Frozen toys.

The softness in the toy industry is partly due to the rise of video games and other high-tech toys that kids are increasingly playing with instead of action figures, dolls and board games.

But the shifting tide in retail isn't helping either. The dominance of Amazon has put pressure on many consumer products companies as Amazon has made a relentless push to lower prices.

Recent struggles at Walmart and Target are also hurting Hasbro and Mattel.

Walmart is the largest customer for Mattel and Hasbro, accounting for about 20% of total sales
for each toy maker. Both toy companies get nearly 10% of their revenue from Target too.​

Amazon's holiday surprise move has completely killed off so many bigs it's not even funny. It was a checkmate move I never thought to see the likes of in history (reference: Amazon pretty much bought up so much Advertising/Paid Media inventory across the board for the week before the "Black Friday" week that it caused a TON of people to see their own conversions drop steeply.).

 

[Potatoe]

Sounds like it's 'business as usual' for their Canadian stores for now. I guess I'll have to wait to get some discounted Funkos