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Toys R Us killed itself

Date

  Thu 22 Mar 2018

Tags

  toys, debt, amazon, online, retailer, shop, experience, brick mortar

URL

  http://money.cnn.com/2018/03/15/news/companies/toys-r-us-closing-blame/index.html?iid=ob_video_footer

Abstract

When Toys "R" Us filed for bankruptcy in September 2017, it disclosed it had about $5 billion in debt and was spending about $400 million a year just to service that debt. That burden crowded out critical strategic priorities, like making its stores a nice place to shop and paying employees. "If you're going to have that breadth of inventory, you need someone in the store to help you find it, help you experience it," said Greg Portell, lead partner at retail consultant A.T. Kearney. "It's hard to sell toys in a cold, warehouse environment."

Content

..struggles of Toys "R" Us predate the boom in online shopping. Many of its wounds were self-inflicted.

Toys "R" Us' debt problems date back to well before Amazon (AMZN) was a major threat. Its debt was downgraded to junk bond status in January of 2005, at a time when Amazon's sales were just 4% of their current level. A year later the company was taken private by KKR, Bain Capital and real estate firm Vornado. The $6.6 billion purchase left it with $5.3 billion in debt secured by its assets and it never really recovered.

The toy store faced several other big challenges at about the same time. There was the rise of big box retailers like Walmart (WMT), which now dwarfs Toys "R" Us in total toy sales. Last year toymakers Mattel (MAT) and Hasbro (HAS) each sold about $1 billion worth of their toys at Walmart, more than twice as much as what they sold through Toys "R" Us. Target (TGT) sold just about as many of their as Toys "R" Us last year. And like most retailers, Toys "R" Us also lost sales to online rivals such as Amazon that offered lower prices and quick shipping.

T-R-U was saddled with billions of dollars in debt. That debt stopped it from making the necessary investment in stores. And that meant an unpleasant shopping experience that doomed the chain. The company told employees Wednesday that it would close or sell its US stores after 70 years in business. ...much of the chain's resources were devoted to paying off that massive debt load rather than staying competitive.

When Toys "R" Us filed for bankruptcy in September 2017, it disclosed it had about $5 billion in debt and was spending about $400 million a year just to service that debt. That burden crowded out critical strategic priorities, like making its stores a nice place to shop and paying employees. "If you're going to have that breadth of inventory, you need someone in the store to help you find it, help you experience it," said Greg Portell, lead partner at retail consultant A.T. Kearney. "It's hard to sell toys in a cold, warehouse environment."