Business

Toys'R'Us files for bankruptcy

Wednesday, September 20, 2017

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NEW YORK, United States (AFP) — Global retailer Toys“R”Us, a fixture in post-war America's booming toys market, said it has filed for Chapter 11 bankruptcy protection, strangled by heavy debt and a tough environment for brick and mortar stores.

The chain, founded in 1948 and “the world's leading dedicated toy and baby products retailer”, sells in the United States and 38 other countries and jurisdictions, with a 23 per cent share of the global toy market.

It now joins other traditional retailers that are struggling to compete with the likes of Amazon.

The company will “restructure its outstanding debt and establish a sustainable capital structure that will enable it to invest in long-term growth and fuel its aspirations to bring play to kids everywhere and be a best friend to parents”, Toys“R”Us said in a statement late Monday.

It noted that operations outside the United States and Canada, “including its approximately 255 licensed stores and joint venture partnership in Asia”, are not part of the bankruptcy proceedings.

“Together with our investors, our objective is to work with our debtholders and other creditors to restructure the US$5 billion 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,” chairman and chief executive Dave Brandon said in the statement.

Various lenders including JPMorgan have agreed to infuse Toys“R”Us more than US$3 billion which will “immediately improve the company's financial health and support its ongoing operations during the court-supervised process”.

The company's approximately 1,600 Toys“R”Us and Babies“R”Us stores around the world — “the vast majority of which are profitable” — will operate as usual, it said.

LATE TO ONLINE GAME

The bankruptcy comes just ahead of the Christmas season, crucial for toy companies, and analysts said its impact could be felt across the supply chain, including at Chinese toy makers.

Back in 2000, Toys“R”Us signed an exclusive online partnership deal with Amazon — the very company now seen as instrumental for its demise — that went sour four years later when Toys“R”Us sued Amazon for violating the deal which was then terminated.

Crucially, the company halted its own online sales under the Amazon partnership, a decision analysts say prevented it from beefing up its internet presence early on and that has now come to haunt Toys“R”Us.

Toys“R”Us in June reported a 4.1 per cent decline in same-store sales for the first quarter of 2017, driven by weakness in the baby category and slowing toy sales, and a net loss of US$164 million, compared with a loss of US$126 million a year earlier.

Calling the results “disappointing”, the company blamed “very aggressive price discounting by our competitors” for the downturn.

But it also said it was taking “several key initiatives” to drive growth for the remainder of the year.

Toys“R”Us, which was taken over in a leveraged buyout in 2005 by several investment funds including KKR and Bain Capital, has no stock exchange listing.

It has a total of 65,000 people on its payroll.

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