Toys R Us Collapses Into Bankruptcy Thanks to Crushing Debt – Trending Stuff

Toys “R” Us Inc.. , the ultimate toyland for a generation of postwar baby boomers, filed for bankruptcy due to a crushing debt load by a buyout and constant competition from warehouse and online retailers.

The retailer, which has 1,600 stores in 38 states, said after an attempt sparked a press report about a bankruptcy, spooking critical vendors and credit insurers its hand was forced. However, revive its business in time for the holiday buying season and it plans to make the best of the situation.

“Chapter 11 was certainly not the organization’s preferred outcome,” Chief Executive David Brandon stated in a court filing. “The timing of all of this couldn’t have been worse. ” He cited the immediate need to build inventory for the holiday season, which accounts for 40 percent of annual earnings. Thanks to a new $3.1 billion operating loan, the business plans to stabilize operations and reopen supply channels while in bankruptcy, he said.

The filing is the latest blow to a brick-and-mortar retail sector, which has seen a series of bankruptcies from Payless Inc. and Gymboree Corp. to Perfumania Holdings Inc.. Chains are reeling from store closures, slow mall visitors and the gravitational pull of Inc.’s lower costs and worldwide home delivery. More than 10 percent of U.S. retail space, or almost 1 billion square feet, may want to close, convert to other uses or renegotiate rent, based on data from CoStar Group.

‘Unrelenting Race’

To compete with Amazon, Target and Wal-Mart, “Toys “R” Us would have had to slash prices to keep traffic into its stores, “decreasing its earnings and cash flows in an unrelenting race to the bottom,” Brandon stated in the filing.

The reorganization will focus on investment in marketing, technology, and an experience which will help it compete in the new environment, Brandon said. The bankruptcy filing in Richmond, Virginia, estimated the company has more than $5 billion in debt, which it pays approximately $400 million a year.  

Much of that is the heritage of a $7.5 billion leveraged buyout in 2005 where Bain Capital, KKR & Co. and Vornado Realty Trust loaded the company with debt to take it private. Since then, the Wayne, New Jersey-based series has struggled to dig itself out.

The $3 billion loan, from a JPMorgan Chase & Co.-led syndicate that includes some present lenders, will finance operations while it restructures the obligations, as reported by a company announcement. The funding is subject to court approval.

Staying Open

Operations will be continued by the company doesn & #x 2019; t plan and says its locations throughout the world.  It’s 1,600 stores, including Babies “R” Us, are complemented by sales through websites such as and

Operations out of the U.S. and Canada, for example about 255 licensed stores, aren’t part of the Chapter 11 filing.  A Canadian unit plans to seek protection. In Australia, Toys “R” Us plans to add another five stores to its existing 39 by Christmas, said Jessica Donovan, a local advertising and marketing manager.

Toys R Us Collapses Into Bankruptcy Thanks to Crushing Debt – Trending Stuff

“Like any retailer, decisions about any future store closings – and openings – will continue to be made based on what makes the best sense for the business,” Michael Freitag, a spokesman for Toys “R” Us, stated in an email.

Mattel Inc.. , an integral supplier, said it stands by the business. “As one of our most important retail partners, we are committed to supporting Toys ‘R’ Us and its management staff as they work through this process, particularly as we approach the holiday season,” the toymaker said in an emailed statement.

Dangerous Dominos

While Brandon made some progress in cutting the closely held series’s obligations, he finally was unable to resuscitate its fortunes. He shot over Toys “R” Us in 2015 and sought to make shopping there a more enjoyable experience with product presentations and the “Hot Toy Finder” to help customers locate items. This past year, he set out a vision of kids “dragging their parents to our stores because they want to see what’s going on. ” 

Beginning in late August, the business tried to handle its debt load through talks with term loan lenders. A Sept. 6 report that a bankruptcy was being contemplated “started a dangerous game of dominoes” where the company lost the confidence of almost 40 percent of its domestic and international sellers, who refused to send products without cash in advance, cash on delivery, or payment of all outstanding obligations, according to Brandon’s court filing. This supposed Toys ’R’ Us needed another $1 billion in liquidity.

The organization’s roots date to 1948, when Charles Lazarus opened Children’s Bargain Town, a baby-furniture store, according to the Toys “R” Us website. He added toys and opened the Toys “R” Us in 1957.

The case is In re TRU-SVC, 17-34659, U.S. Bankruptcy Court, Eastern District of Virginia (Richmond).

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