Bankruptcy Approaching For Toys 'R' Us

Lucy Hill
September 21, 2017

Did you go to Toys "R" Us when you were younger?

The chain could have avoided bankruptcy for another two years but "it would have delayed the inevitable", according to Tuesday court testimony by David Kurtz of Lazard, an investment bank advising Toys "R" Us.

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.

"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, Chairman and Chief Executive Officer, in a release regarding the filing.

Toys "R" Us has filed for Chapter 11 bankruptcy protection in federal court in Richmond, Va. Toys "R" Us filed suit in 2004, alleging that Amazon failed to live up to its end of the bargain. But its future is hardly certain. It's partly that kids aren't interested in toys - most kids are more interested in electronic games than traditional toys nowadays - but also parents are no longer bothering with brick-and-mortar retailers when they can buy toys online at Amazon or Walmart for cheaper, or order online directly from the source.

The chain's older suburban big-box shops will also be overhauled to give kids a chance to try out toys in the store.

"Foreign suppliers are, in fact, given an advantage because they don't abide by the law, whereas Canadian companies that abide by the law are not being paid", said Brzezinski, adding that the ruling affects USA suppliers as well, under North American treaty agreements.

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Then came e-commerce. Toys are particularly suitable for online shopping. Amazon makes that extraordinarily convenient.

Will Toys "R" Us and Babies "R" Us continue to run typical sales and promotions?

Hasbro Inc., the maker of Play-Doh and Transformers and My Little Pony toys, said it was declining to comment while it's "in the process of evaluating the terms of the Toys R Us bankruptcy filing and until we have a full understanding of the terms and their impact to Hasbro". The first is a heavy burden of debt.

Toys'R'Us has struggled with debt since private-equity firms Bain Capital, KKR & Co and Vornado Realty Trust took it private in a 6.6 billion dollar buyout in 2005. It also has $400m in secured and unsecured debt maturing next year.

Toys R Us entered Chapter 11 bankruptcy protection Monday, pitching a business-as-usual approach to customers and suppliers as the crucial holiday shopping season approaches. Like many department-store chains, its inventory has been painfully slow to adapt to changing trends.

The bankruptcy filing in the US estimated the company has more than $5 billion (U.S.) in debt, which it pays around $400 million a year to service, according to Bloomberg. That has been bumpy work.

According to data from Ecommercedb.com, Amazon had the lion's share of baby and toy products sold online in the United States, with $2.16 billion in sales in 2016.

Other reports by TheDailyFarc

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