January 24 2018

Popular US Toy Store Files for Bankruptcy

January 24 2018, 01:49 | Sammy Rose

Toys 'R' Us shutdown looms amid bankruptcy filing

Nicholas Mann 4 visiting New York with his family from Ohio plays on the FAO Schwarz teddy bear on Fifth Avenue in 2001

On its restructuring informational page, the company says that the Chapter 11 filing only affects its USA and Canadian operations, which excludes its separate entities in Asia.

The New Jersey-based chain has secured more than 3bn U.S. dollars (£2.2bn) in financing from a syndicate of lenders to help keep its stores open.

Toys "R" Us hopes the move will allow it to effectively restructure its debts, ultimately turning the failing business around.

Moving forward, the company intends to restructure its debt while also strengthening its portfolio "in an increasingly challenging and rapidly changing retail marketplace worldwide". With the holiday season coming up, the retailer also is under huge pressure to give its major vendors, such as Mattel and Hasbro, clarity into its long-term viability. Toys "R" Us' large network of shops are seen as a burden as customers switch to online shopping.

Toys "R" Us still faces a tough road ahead as it faces competition from giants like Amazon and Walmart, which have adapted to the changing retail landscape.

Still, while investors seem to think Mattel and Hasbro can shake off its Toys "R" Us woes, another company, Spin Master, has fallen another 1% on the Toronto Stock Exchange Tuesday. The company hired the law firm Kirkland and Ellis to help pay down about $400 million in debt by the year's end, according to USA Today.

The iconic toy chain is just one of many businesses to suffer this year.

All of this has been exacerbated by a big problem outside of Toys "R" Us' core business: Billions of dollars in debt resulting from its 2005 leveraged buyout by Bain Capital, KKR and Vornado Realty Trust.

Brandon said the restructuring plan will give the company more financial flexibility to invest in growth.

Each in their own way, these competitors are upping the ante on value and convenience, and Toys "R" Us has not kept pace.

The women's clothing store announced in early January that it would close all brick-and-mortar stores, and later its parent company filed for bankruptcy.

While toy sales overall have held up fairly well, they are shifting toward discounters and online companies.

Competitors such as Amazon (NASDAQ:AMZN) have continually strengthened in recent years, dominating the toys, books and electronic market. That was the biggest increase since 1999 and was fuelled by several blockbuster movies.

USA toy sales rose 6 percent last year on top of a 7 percent increase in the prior year, said NPD Group, a market research firm.

But a bankruptcy attorney, Charles M Tatelbaum of the Tripp Scott law firm in Florida, issued a statement that the Toys R Us announcement "has had a boomerang effect in that suppliers of toys, children's clothing and goods for the holiday selling season are now reluctant to deliver new inventory to Toys R Us without some or all cash upfront".

Toys "R" Us file for bankruptcy protection in the United States and Canada.

Meanwhile, Brandon said in the latest quarterly earnings call, Toys "R" Us has been hurt by competitors lowering free-shipping thresholds and shipping more quickly.

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