What Happened to Toys “R” Us?

September 2017: Toys “R” Us declares bankruptcy.

Early 2018: Toys “R” Us announces the closure of 180 stores.

February 2018: Toys “R” Us announces the closure of 200 more stores.

March 2018: Speculation abounds that Toys “R” Us will close all US stores and liquidate.

March 14, 2018: Toys “R” Us announces that it will close or sell all 800 of its US stores.

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I would bet that everyone reading this article has either shopped at Toys “R” Us or received a gift from Toys “R” Us. Founded in 1957 and morphing into its current format in about 1969, Toys “R” Us became the first mega “category killer” toy store. Most kids in the Seventies, Eighties and Nineties begged their parents to take them to Toys “R” Us. I know; I was one of those parents. The Toys “R” Us dominance of the toy market made small toy stores and hobby shops almost obsolete. Even KB Toys couldn’t keep up.

So, what happened? What went wrong? Some say bad planning. Some say bad luck. Probably both, but the real beginning of the end was the leveraged buy out of Toys “R” Us in 2005 by Bain Capital and KKR & Co. That leveraged buyout resulted in a staggering debt load of $6.6 billion for the company. This resulted in management distraction and put Toys “R” Us in a constant refinancing mode.

The tremendous growth in competition from Amazon and Walmart made things worse. With much deeper pockets, both retail giants began heavy discounting of toy prices to get parents to switch loyalties.

Then, add kids’ changing tastes to the mix. Toys “R” Us said “kids never want to grow up.” That may be partly true, but online video gaming and phone apps have taken a huge chunk out of the physical toy market. The financial crisis of 2008 and 2009 didn’t help matters.

The irony is that Toys “R” Us still sells millions and millions of dollars’ worth of toys, and toy sales rose 5 percent last year. But continued aggressive competition and the Toys “R” Us financial difficulties have taken their toll. Toys “R” Us continuing as a going concern is in doubt by most of the financial community. But there’s still hope. As of this writing, Toys “R” Us has officially announced the company’s liquidation, but it’s working on a possible plan to keep about 200 of its most profitable US stores open, according to CNBC. Can they make it? Maybe. Plans continue to evolve, and as of now, it’s unclear when exactly the doors will close.

Comments
  • They effectively killed themselves years ago – by contracting with Amazon to handle their on-line purchases. This trained their customers to go online (where they usually found less expensive options), while delaying their own omni-channel development. They literally guided customers to their competition.
    That, plus not updating their stores in over a generation.

    Reply

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