According to published reports the company has informed its employees that retailer may sell or close all its U.S. stores with a mass layoff of up to 33,000 employees in the coming months. The company has filed "liquidation" papers with the authority prior to its bankruptcy hearing.
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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, Walmart, and Target as the chain’s major competitors where onecan get a better deal for big-ticket toys that may require returns and/or refunds. Additionally, consumer play preferences have drastically been altered toward online games that can be downloaded and played on the ubiquitous smartphone -- all without a visit to any toy store.
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.