Toys ‘R’ Us, Once a Category Killer, Is Forced Into Bankruptcy
After falling behind online, the big-box chain seeks relief from debt added in leverage buyout
By Lillian Rizzo and Suzanne Kapner
Toys ‘R’ Us Inc., the rainbow-colored toy emporium that for decades was the go-to spot for birthday and holiday gifts, filed for chapter 11 bankruptcy protection late Monday night, undone by a hefty debt load and the rapid shift to online shopping.
As part of the restructuring process, Toys ‘R’ Us plans to close some underperforming stores, according to people familiar with the matter. Its remaining locations would be reconfigured to be more experienced-based, incorporating amenities such as in-store play areas, they added.
The company expects most of its stores will be open for the holidays and it will use $3 billion in bankruptcy financing to continue buying merchandise and funding its operations, the people said.
The company, which operates about 1,600 stores around the world, was a classic example of a “category killer,” a huge specialty store with low prices that squeezed independent shops. It swallowed up several rivals that have themselves filed for bankruptcy protection, including FAO Schwarz and Kay Bee Toys, a mall-based chain that liquidated hundreds of stores before it was sold.
“They are the last major free-standing toy retailer in the U.S.,” said Jim Silver, the chief executive of TTPM, a website that reviews thousands of toys each year for consumers. As the testing ground for new products, Toys ‘R’ Us often identifies hits before rivals, as it did with Zhu Zhu pets in 2009, Mr. Silver said.
But like many other big-box chains, including Borders, Circuit City and Sports Authority, Toys ‘R’ Us struggled with the rise of discounters like Wal-Mart Stores Inc. and TargetCorp. , and more recently, Amazon.com Inc. It was late to develop and expand its e-commerce business and placed big bets on licensed toys for “Star Wars” and Lego movies that missed expectations.