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Toys‘R’Us Joins Chapter 11 Club

Looks to unburden $5 billion debt load 9/19/2017 12:15:00 PM Eastern
Take Away

The toy chain filed ahead of the impending Christmas selling season to assure vendors of its solvency.

Continuing an escalating if unnerving trend this year, Toys“R”Us, No. 21 on TWICE’s Top 100 CE Retailers Report, has joined the growing list of national retailers seeking Chapter 11 bankruptcy protection.

The No. 1 toy specialty chain, which is principally held by a trio of private investment firms, said it has filed in the U.S. and Canada in order to restructure its long-term debt and reinvest in the business.

According to a vendor FAQ posted to the company’s corporate site, the retailer has been “significantly impacted” by a $5 billion debt load on its balance sheet. The cost of carrying that debt has precluded needed investments that would allow the business to compete effectively in “what has become an increasingly challenging and rapidly changing retail marketplace.”

Indeed, Toys“R”Us – the third-largest retailer by assets to file Chapter 11, after Kmart and Federated – follows a string of chainstore bankruptcies this year, including The Limited, Payless ShoeSource and Gymboree in soft goods, and RadioShack and hhgregg in hardlines.

Others, including Sears, Macy’s and JCPenney, are closing locations across the country as the retail industry adapts to the convenience and price transparency of digital commerce, and adjusts to a grossly overstored landscape.

For Toys“R”Us, the primary challenge is category killer Amazon, which along with Walmart decimated the playthings specialty channel. Now the last toy chain standing, the company has gone through a long series of restructurings, management changes and strategic pivots toward tech, which put it at 21st place on TWICE’s Top 100 CE Retailers ranking, with $513 million in electronics sales last year, a 22.5 percent decline.

Going forward, it will be business as usual the company said, at least for customers and post-filing vendors, now that it has received commitments for over $3 billion in new financing that will help keep the doors, website and accounts payable department open.

Vendors that provided goods and services prior to the Chapter 11 filing “generally cannot be paid,” the company said. Besides leading toy makers Mattel and Hasbro, the list of top creditors (and their unsecured claims) on the CE side includes VTech ($17.7 million), Jakks Pacific ($14 million), and Ingram Entertainment ($2.9 million), according to U.S. Bankruptcy Court documents filed in the Eastern District of Virginia.

Overseas operations outside Canada are not affected by the bankruptcy.

The business was founded by children’s furniture merchant Charles Lazarus, who opened his first Toys “R” Us store in 1957. The company went public in 1978, and was taken private in 2005 by affiliates of Bain Capital, Kohlberg Kravis Roberts and Vornado Realty Trust in a $6.6 billion debt financing deal.

Take Away

The toy chain filed ahead of the impending Christmas selling season to assure vendors of its solvency.

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