Toys R Us lodges for insolvency ahead of holiday season

Dianna Christensen
September 21, 2017

The company filed under Chapter 11 of the USA bankruptcy laws late Monday, which will allow it to stay open and protect it from creditors' claims while it restructures its long-term debt of more than $5 billion.

Toys "R" Us may be filing for bankruptcy ahead of the holiday season, and it's causing shares for two major USA toy companies to drop - Hasbro Inc. and Mattel Inc.

From 2018 to 2021, the company plans to invest $277 million to convert existing locations into side-by-side storefronts for toys and the company's Babies R Us brand.

Toys "R" Us filed for Chapter 11 protection late Monday in an attempt to lessen a debt load of more than $5 billion.

The company is saddled with debt from a $6.6 billion buyout in 2005 led by KKR & Co LP and Bain Capital LP, together with real estate investment trust Vornado Realty Trust.

The company's Canadian unit intends to seek protection in parallel proceedings, it said in a statement.

Toys "R" Us is focused on continuing to provide the best quality, value and selection in the toy and baby categories and outstanding service whenever, wherever and however you choose to shop with us this season and beyond.

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Analysts say Toys "R" Us hasn't been aggressive about building its online business, and has let those sales migrate to rivals.

It is one of 12 new stores the Toronto-based retailer will open by the end of 2017, "the largest single year expansion in the company's 33-year history", the company said in a release.

Toys "R" Us has a Sudbury store, also located on Silver Hills Drive. Walmart, the largest toy store in the country, claimed the second spot online with almost $1.3 billion.

Operations outside of the United States and Canada, including about 255 licenced stores and joint venture partnerships in Asia, which are separate entities, are not part of the bankruptcy proceedings, Toys "R" Us said.

When asked about possible layoffs, Toys "R" Us responded to a Global News email saying the bankruptcy protection isn't about "store closures or staff reductions", but rather a "proactive step" to improve the business.

At that time, Toys R Us was considered on the level with Walmart in terms of retail strength, both for its ability to drive smaller competition out of business and its vast real-estate holdings. "They're a major buyer and I would say that the majority of toy makers in China would have some contracts with them". And yeah, OK, maybe we were all partly to blame. Sometimes this results in the company returning stronger than before, but there are cases where stores close down during restructuring.

Second, Toys "R" Us has not helped itself. US toy sales rose 6 per cent last year on top of a seven per cent increase in the prior year, says NPD Group Inc., a market research firm. Toys " R " Us, headquartered in Wayne, NJ, and has almost 65,000 employees worldwide.

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