Toys “R” Us, the store that many people knew as the store that sold them their childhood happiness, is now filing for bankruptcy. Whereas many people thought Toys “R” Us has amounted to much success, they have actually collected over five billion dollars of debt over the years. Part of this can be looked back to 2005 where three private equity firms bought Toys R Us in a buyout. This resulted in interest costs at around $400 million per year. While Toys “R” Us may be filing for Chapter 11 bankruptcy, the company’s chief executive Dave Brandon stated that stores would continue to carry on operating. This means that Toys R Us is not closing, but the future is looking hazy for the toy store.
So where did it all go south? We can look to the 1990’s when retail stores such as Walmart started emerging. With the convenience of buying a toy in the same place you can buy groceries or clothes, consumers soon forgot about Toys R Us. Another reason how Toys R Us ended up in this situation was the emergence of the Internet and e commerce. As people with children are busy, they would rather buy a toy in the convenience of their homes rather then go to a store. It is predicted that 41% of toys and games will be bought online this year alone. The lack of significant Internet presence also hurts the company when it comes to changing trends. For instance, fidget spinners were all the craze last year and were first available online. Toys R Us was very slow to adapt their inventory and missed out on a large share of profits.
Toys R Us is currently trying to build an online presence, but it has not been easy for the company as there are plenty of other websites where people can buy toys. Much like how Walmart is a threat to Toys R Us with physical stores, Amazon has an incredible grasp on the virtual market that it seems near impossible to establish a presence. What is interesting to note is that in 2000 Amazon and Toys R Us merged to manage online toy sales, but soon went through a lawsuit of a broken agreement where Toys R Us was the victor.
Originally published by The Economist, Toys “R” Us files for Bankruptcy, September 23, 2017. New York.