Toys ‘R’ Us Faces Bankruptcy Filing

Toys ‘R’ Us Faces Bankruptcy Filing

The financial woes for the once dominant toy retailer appear to have gone from bad to worse. On September 16, Reuters filed a story stating that the beleaguered brick and mortar store “is working to put together a loan to fund its operations in a potential bankruptcy filing that could come before the holiday sales season, according to people familiar with the matter.”

Pressured no doubt by suppliers who want guarantees they’ll be paid for big holiday shipments, the filing is their only likely move. We’ll have to wait a few more days until an official announcement to find out more about the company’s restructuring. (The company is already swimming in debt after it used accepted some $6B in private equity back in 2005.)

For many, this news hardly comes as a big surprise. If anything: it’s expected. Their earnings for Q1 were down a painful $35M after an abysmal holiday shopping season. In June, officials were quoted in their earnings announcement that the company was launching an online baby registry along with other a “new webstore” to appeal to online shoppers.

Those online shoppers, of course, already had plenty of places to go for online registries: WalMart, Amazon, and Target to name three. Those same shoppers likely also had better online experiences as all three of the major omnichannel sellers have plenty of merchandise to offer busy parents who are looking for more than just toys.


The Same Perfect Storm

While it’s easy to point solely to Amazon: there are other factors that are impacting this, and other, retail brands. One: over-expansion. There are still too many malls in America that cropped up in the 80s and 90s retail boom. Booms usually go bust, and when they do: there’s fallout.

Two, people prefer department stores over single-channel sellers. It’s far more likely (and increasingly common) that a busy mom or dad is going to turn the car into the Target parking lot where they can pick up groceries, home goods, as well as do some last-minute holiday shopping.

Toys ‘R’ Us is, tragically, in good company this week. On Friday, women’s comfort shoe retailer/brand Aerosoles filed for Chapter 11. With so many physical locations to maintain, and so many better online options for all types of consumer goods: expect to see more of the same in the upcoming months.

It’s anyone’s guess who will weather the storm. On any given day in 2017, you can find plenty to read about ailing retailers. In June, Moody’s list of failing companies included Neiman Marcus, True Religion, Gymboree, Tom’s Shoes and David’s Bridal. Not one month later: True Religion, the go-to jean for the 00’s, filed Chapter 11.

When it comes to physical retail: we remain optimistic, especially about brands and companies who are embracing the future.

The pragmatic reality is that we just haven’t seen the complete fallout yet.  

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