End of an Era: I’m a Toys ‘R’ Us Kid!

For decades, Toys ‘R’ Us was the place every child begged their parents to take them to, at least it used to be. From restructuring to complete and total liquidation, Toys ‘R’ Us, the household name of toy stores for over 60 years is now closing its doors forever. The abrupt and incomprehensible disintegration of the toy-selling conglomerate comes a mere six months after filing for Chapter 11 bankruptcy protection that had been made in hopes of achieving a new beginning. An ambitious strategy was drawn up, revamping old outdated stores, elevating Internet sales, and implementing the innovative technology of augmented reality.

What went wrong?

  1. Pressure from competition was too great.

As if it wasn’t already blatantly apparent, the industry of retail is not only vicious and ruthless, but a downright bloodthirsty war, the downfall of Toys ‘R’ Us is simply a casualty in this battle. The enterprises leading rivals Target, Wal-Mart, and Amazon saw an opportunity to kick them when they were down, and jumped at it. All three stacked up markdowns on toys during peak holiday season, driving what some experts considered the fatal blow. According to Toys ‘R’ Us CEO David Brandon, they “could not compete” with the low-margin prices considering the company is dependent “exclusively on toys for profit.”

  1. $5 Billion in debt & liabilities was unmanageable.

Kohlberg Kravis Roberts (KKR), Vornado Realty Trust, and Bain Capital Partners LLC, the parent companies of Toys ‘R’ Us took the company private in 2005 after acquiring it for $6.6 billion, a transaction they bankrolled predominantly with debt. Although they viewed its real estate as an asset and envisioned aggressive expansion into Asia, the diversion of over $400 million a year towards the growing $5 billion worth of liabilities, was devastating. Being unable to provide the funds to expand or invest back into itself and its future, ultimately and permanently crippled the company.

Read: Toys-R-Us goes bankrupt

  1. Bankruptcy makes for nervous vendors.

For a company already teetering on the verge of total collapse, fearful toy suppliers became apprehensive that Toys ‘R’ Us would be unable to provide payment as promised. Based on Toys ‘R’ Us Chapter 11-bankruptcy filing, nearly 40% of both domestic and international merchants required the company to pay in advance or upon delivery of goods. This alone would have meant the company needed to acquire $1 billion in supplementary liquidity funds.

Read: Vendors cut shipments do to Toys-R-Us filing chapter 11