Toys “R” Us has begun the process of shuttering its US operations, resulting in the impending closure of more than 700 remaining stores and leading to an estimated 30,000 job losses. The New Jersey-based retail giant has officially filed a motion seeking Bankruptcy Court approval in its Chapter 11 proceedings to begin the process of winding down all US businesses.
Toys “R” Us (along with certain of its American and Canadian subsidiaries) filed for bankruptcy protection last September. At the time, the retailer said it would use the court-supervised proceedings to restructure its outstanding debt of US$5.2 billion and establish a sustainable capital structure in order to invest in long-term growth. In January, Toys “R” Us announced it would close roughly 180 US stores, and in February it was reported that another 200 stores would be shuttering.
Toys “R” Us Canada, however, said today that it is unaffected by the company’s US announcement. Toys “R” Us Canada’s business operates autonomously from US operations and is reporting a strong cash and liquidity position. The retailer will continue normal business operations at its 82 Canadian locations.
Still, Toys “R” Us and its advisors are in active discussions regarding an acquisition of Toys “R” Us Canada’s entire business, and as a result the retailer is currently seeking approval in its Chapter 11 proceedings of a process for the sale of its equity interest in Toys “R” Us Canada. According to a report from The Wall Street Journal, Toys “R” Us will bundle its Canadian business with approximately 200 US stores to facilitate the sale.
MGA Entertainment CEO Isaac Larian—along with affiliated investors—submitted a bid yesterday to buy the retailer’s 82 Canadian locations, Larian confirmed to Kidscreen. The group will reportedly also seek to operate as many as 400 US locations. Larian called on fellow toymakers to band together to save the retailer through posts on LinkedIn and Twitter. MGA Entertainment owns best-selling brands like L.O.L. Surprise! and Num Noms.
Just yesterday, Toys “R” Us announced that it would move forward with UK store closures. The retailer entered into insolvency administration in the region on February 28 and failed to secure a buyer for all or part of its businesses.
The store closures undoubtedly spell uncertainty for manufacturers. According to BMO Capital Markets, Toys “R” Us accounts for 9% of sales at Hasbro, 11% at Mattel, 12% at JAKKS Pacific and 15% at Spin Master. Mattel and Jakks Pacific both reported that Toys “R” Us filing for bankruptcy protection in September contributed to their sales declines in fiscal 2017. The outlook is bleaker for smaller toycos that rely on Toys “R” Us for a larger portion of their sales.
Despite Toys “R” Us launching a transformation strategy in 2014 with a focus on a strengthened omni-channel fulfillment model, optimized e-commerce business, international growth and improved customer experience, the retailer has struggled to compete with heavyweight e-tailers like Amazon.