The iconic second largest toys retailer in the U.S. Toys ‘R’ Us and Babies ‘R’ Us have filed for Chapter 11 Bankruptcy protection on Monday.
Chapter 11 Petition and Customary Motions Filed with The U.S. Bankruptcy Court
The Toys Giant has voluntarily filed for Chapter 11 petition in the U.S. and parallelly seeking protection for its Canadian Stores under CCAA. Continuing with the petition, the company has also moved to file other customary motions with the bankruptcy court.
These motions seek smooth operations while restructuring and completing payments that include employee wages, vendors cost. Also, they are promising to honor the ongoing loyalty programs despite the huge hit to the company.
Losing to Discounters, Amazon & Changing Trends
The major force in U.S. and worldwide, Toys ‘R’ Us started losing its customers to big basket discounters like Walmart and its biggest competitor, Amazon. Further, add to the misery is how the toys’ preferences have changed in the past years.
One in three children today own a smartphone or a tablet reducing the craze for toys and games as a result.
60 Year Old Company Came Under Debt Since 2005
A sixty-year-old company with more than 1600 stores and 64000 employees, Toys ‘R’ Us came in debt after the three private firms bought it in 2005. With massive debt since a decade, the company couldn’t follow through with changing trends and let the majority of online sales go to its rivals.
Though it has come to senses with online stores opening a while back, the majority of the market is held up by arch-rival Amazon.
In the year 2016, 13.7% of total toy sales were made online, compared to just 6.5% from 5 years ago, says an estimate done by GlobalData
Commitment for over $30 Billion To Aid Company’s Financial Health
Approaching Holiday season marks up to half of the annual sales for Toys ‘R’ Us and Babies ‘R’ Us. With a declaration that all loyalty programs including Rewards“R”Us, Geoffrey’s Birthday List and Babies“R”Us Registry would be operational as usual.
“As the holiday season ramps up, our physical and web stores are open for business, and our team members around the world look forward to continuing to put huge smiles on children’s faces.”, Says Mr. Brandon from Toys ‘R’ Us.
They have also received the commitment for receiving $30 billion in DIP financing from miscellaneous vendors including JPMorgan-led bank syndicate and existing lenders of the Company.
“Together with our investors, our objective is to work with our debtholders and other creditors to restructure the $5 billion of long-term debt on our balance sheet, which will provide us with greater financial flexibility to invest in our business, continue to improve the customer experience in our physical stores and online, and strengthen our competitive position in an increasingly challenging and rapidly changing retail marketplace worldwide. We are confident that these are the right steps to ensure that the iconic Toys“R”Us and Babies“R”Us brands live on for many generations.” , CEO and Chairman Dave Brandon.
Restructuring to Address the Financial Constraints in a Lasting Way
Toys ‘R’ Us calls this event as a dawn of the new era where they wish to take this opportunity to restructure the $5 billion debt and take the right steps that ensure the iconic Toys “R” Us and Babies “R”Us live on for generations to come.
While we wish the oldest toy retailer gains back momentum, they have a long way to go with discounters and online competitors like Amazon pushing even harder this holiday season.