A BROKEN TOY?

Am I Next? Toys R Us Bankruptcy

Although entering bankruptcy prior to the holiday season is not optimal, neither is a call on $400 million in maturing debt. Of course, bankruptcy is merely a tool to assist the company in renegotiating and restructuring debt as well as abandoning leases for unwanted brick-and-mortar stores. This debt apparently arises from the results of an older $6.6 billion buyout in 2005 when private equity investors like KKR, Bain Capital, Vornado Realty Trust, and others planned to reorganize the company for a future public offering. Unfortunately, 2008 happened with its mortgage meltdown and subsequent recession. Although the company has experienced ongoing net revenue losses, they still have operational liquidity and a large line of credit.

Competitively, consumers might regard Amazon, one of the chain’s major competitors, as a better deal for big-ticket toys that may require returns and/or refunds.

I would not be surprised to see mass layoffs and store closings in the future as the brick-and-mortar empire downsizes and gives way to the digital domain. Whether or not they can compete effectively with Amazon, Walmart, and Costco remains to be seen.