With the all-important holiday selling season now behind it, bankrupt playthings chain Toys“R”Us is looking to ax as many as 182 of its least-productive stores in an effort to “right-size” its store base.
The targeted locations, which represent about 20 percent of its approximately 885 U.S. stores, are operating at “sub-optimal performance levels,” the company said in a filing with the U.S. Bankruptcy Court in Richmond, Va., with most posting “negative sales trends.”
The last remaining national toy chain said the stores are a drain on liquidity, reflecting continuing challenges from retail competitors and consumers’ shift from in-store to online shopping.
Those forces — led by category killer Amazon and mega-discounters Walmart and Target — plus a $5 billion debt load, compelled the company to file for Chapter 11 bankruptcy protection last September.
In an email blast to customers, chairman/CEO David Brandon said store closings would begin in early February, with the majority to follow in mid-April.
“The actions we are taking are necessary to give us the best chance to emerge from our bankruptcy proceedings as a more viable and competitive company that will provide the level of service and experience you should expect from a market leader,” he wrote.
He added that “operational missteps” marred some customers’ shopping experiences over the holidays.
The final number of store closings will depend on the chain’s ability to renegotiate lease terms and secure rent reductions, it said in the bankruptcy court motion. The company also plans to convert a number of locations into joint Toys“R”Us and Babies“R”Us stores.
The toy chain was launched by children’s furniture merchant Charles Lazarus in 1957, but in recent years has undergone an extended series of restructurings, management changes and strategic pivots toward tech. The moves landed it at 21st place on TWICE’s Top 100 CE Retailers Report, with $513 million in electronics sales in 2016, a 22.5 percent decline.
The company is the third-largest retailer by assets to file for Chapter 11 after Kmart and Federated, and was arguably set up to fail with its leveraged buyout in 2005 by affiliates of Bain Capital, Kohlberg Kravis Roberts and Vornado Realty Trust, which saddled it with $6.6 billion in financing debt.
Nevertheless, Toys“R”Us, along with Sears, JCPenney and Macy’s, has become emblematic of big-box retail’s woes as traditional sales models give way to integrated blends of in-store, mobile and online shopping.
Store-closing sales have been assigned to retail liquidators Gordon Brothers Retail Partners and Hilco Merchant Resources.