Friday, March 16, 2018

Toys R Us Is Closing Its Doors

National toy retailer, Toys R Us, sought court approval yesterday to liquidate its remaining 735 stores, thus signaling the end for a chain known to generations of children and parents for its sprawling stores, Geoffrey the giraffe mascot, and its catchy "I Don't Wanna Grow Up" jingle. As Toys R Us implodes over the next few weeks, you'll hear a lot of talk about how Amazon and Wal-Mart caused the death of yet another brick-and-mortar retail operation. And, while Amazon and Wal-Mart certainly contributed to the downfall of Toys R Us, they weren't what struck the fatal blow.

In 1978, Toys R Us went from a privately held company to a publicly traded one. This, of course, meant that anyone could buy shares of Toys R Us on the stock market. In 2005, shares of Toys R Us were purchased by three companies, Bain Capital (connected to Mitt Romney. Get your "Mormans Destroyed Toys R Us" headlines out now), KKR and Vornado in a leveraged buyout. These companies joined together to get a $6.6 billion loan to buy Toys R Us and $5.8 billion in debt from the purchase went right onto the balance sheet of Toys R Us. This was right before Wal-Mart and Amazon started to eat Toys R Us' lunch. Plus, the trend of tablets and game consoles overshadowing toy sales didn't help either. This meant that Toys R Us had less profit with which to service its massive debt and less money to invest into improving its stores. And, for me, that's where Toys R Us massively failed. Going into a Toys R Us over the last several years was like walking into a Mad Max movie. Whenever I went in there, I expected to find post-apocalyptic gangs setting up rival camps in various different sections of the store. You'd find The Vuvalini in the Lego section and The Buzzards in the clearance aisle.

That's not to say that there isn't still a glimmer of hope that Toys R Us can survive this. The stores will remain open for the next 60 days and a buyer could still possibly be found. If that happens, and there's enough money involved to act on some initiatives to improve the stores and make them more inviting to customers, then Toys R Us may just come out of this alive. It's possible, but I don't think it's probable. It's much more likely that we'll have to relegate Toys R Us to the shelf of childhood memories like we've had to do with many other formally popular retail stores over the last few years.

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