Rise in online shopping pushes world’s largest toy retailer into $5bn debt as it seeks help to survive in North America
Toys R Us has filed for bankruptcy protection in the US and Canada after running up $5bn of debts and struggling to compete in the age of internet shopping.
The world’s largest toy store chain said it had filed for Chapter 11 to restructure its debts and work out a sustainable path for its finances that would allow it to invest in long-term growth.
The New Jersey-based company, which employs 64,000, said the vast majority of its 1,600 stores around the world were profitable, adding that its businesses outside North America were not affected.
The group’s history dates to the 1950s in the US.
“Today marks the dawn of a new era at Toys R Us, where we expect that the financial constraints that have held us back will be addressed in a lasting and effective way,” said Dave Brandon, the chairman and chief executive.
“Together with our investors, our objective is to work with our debtholders and other creditors to restructure the $5bn of long-term debt on our balance sheet, which will provide us with greater financial flexibility to invest in our business, continue to improve the customer experience in our physical stores and online, and strengthen our competitive position in an increasingly challenging and rapidly changing retail marketplace worldwide.”
The 60-year-old company, which faces about $400m of debt repayments in 2018, said it had secured about $3bn of financing from various lenders, including a JP Morgan-led bank syndicate, to keep its stores open as usual as it approaches its key Christmas selling period.
Brandon said: “As the holiday season ramps up, our physical and web stores are open for business, and our team members around the world look forward to continuing to put huge smiles on children’s faces. We thank our vendors for their ongoing support through this important season and beyond.”
Analysts say the company’s large network of shops are an expensive burden at a time when online giants Amazon and Walmart are discounting toys to steal their shoppers.
“The demise of Toys R Us in North America will come as little surprise in an environment where bricks and mortar retail is continuing to struggle with high debt levels and the havoc being wreaked by e-commerce,” said Jon Copestake, chief retail and consumer goods analyst at the Economist Intelligence Unit. “Toys R Us has proven to be particularly vulnerable to online competition which offers greater choice and convenience, often at a better price.
“There is room in physical retail for toy stores as the queues outside Hamleys and Lego stores will testify but success is now more likely to come from stores that reinvent themselves as destinations offering experiences or as niche outlets for hardcore collectors. The ‘pile them high’ big box approach is simply no longer relevant.”
Toys R Us said that as part of its proceedings it had sought approval to continue paying staff wages and benefits, honour customer programmes, and pay suppliers as usual.