Another retailer owned by private equity firms goes bust.
Toys “R” Us filed for Chapter 11 bankruptcy late Monday in the US Bankruptcy Court in Richmond, Virginia. The bonds of the largest toy retail chain in the US have gotten crushed, as word was spreading that it was preparing to file for bankruptcy. Standard & Poor’s rates the bonds a merciful CCC-. This is deep into junk, but still two notches above D for “default.”
The a $208 million issue of senior unsecured notes due in October 2018 with a coupon of 7.375% had plunged to 46 cents on the dollar on Friday, from 65 on Thursday. Today, they dropped below 21 cents on the dollar before the bankruptcy filing.
They have now plunged 78% since September 4, when they were still trading at 97 cents on the dollar. The plunge of those notes began in earnest on September 6, when it became known that the company had hired law firm Kirkland & Ellis, whose bankruptcy-and-restructuring practice is considered a leader in the industry. That was the sign. At the time, “sources familiar with the situation” said that bankruptcy was one of the options. And all heck broke loose for those bonds.
Toys “R” Us has $5.2 billion in long-term debt, according to its latest quarterly report, and sports a negative equity of $1.3 billion. Quarterly sales declined 4.8% year-over-year, to $2.2 billion. Same-store sales dropped 4.1%. And the net loss jumped to $164 million.
Under attack from Amazon, Walmart, and other online and brick-and-mortar competitors, sales of Toys “R” Us in the quarter were down 15% from the same quarter in 2012. Yet toy industry sales have been growing by around 5% a year over the period.
“With these debt levels, how much actual flexibility do you have in this environment?” Charles O’Shea, who covers Toys “R” Us for Moody’s, told Bloomberg. “You have to invest online – because your principal competitors there are really good – and you’ve got to deal with the debt load and your maturities on top of that. The pie is only so big.”
About $400 million of its debt comes due in 2018, including the above mentioned notes that have collapsed. In 2019, $2.6 billion in debt come due. In 2020, another $1.36 billion will mature. And Toys “R” Us doesn’t have the means to redeem this debt, and the possibility of new debt to pay off old debt has dried up. So it needs to restructure its debts, and creditors are going to get their heads handed to them, and a bankruptcy filing is now the chosen mechanism by which to do this.
On September 14, Bloomberg reported that, “according to people with knowledge of the matter,” some vendors, fearing getting caught up in a bankruptcy and facing soaring costs to insure their receivables from Toys “R” Us, are curtailing their shipments to the company. This is terrible timing, just before the holidays, when Toys “R” Us makes about 40% of its annual sales and when it desperately needs the merchandise to make those sales.
Vendors rank low on the totem pole of creditors during bankruptcy proceedings and have often little chance of getting repaid. This scares vendors. But when vendors get scared and pull back, it seals the merchant’s fate since it won’t have the merchandise it needs to sell in order to stay alive.
On September 7, Debtwire reported that Toys “R” Us was holding talks with restricted investors about raising rescue financing to pay off the debt maturing in 2018, but at the same time was also trying to line up “debtor-in-possession” financing. DIP financing, which grants lenders special rights, is used to fund a company during bankruptcy proceedings. This was a strong indication of what would happen next.
Today Bloomberg reported that JPMorgan Chase, Barclays, Goldman Sachs, and Wells Fargo, “are said to be vying” to provide DIP financing for Toys “R” Us. The size of the DIP loan could be reach $3 billion, “a person with knowledge of the discussions” told Bloomberg.
This makes Toys “R” Us the next casualty in the brick-and-mortar retail meltdown. And like so many bankruptcies involving brick-and-mortar retailers, it too is owned by private-equity firms.
In 2005, during the leveraged buyout boom, PE firms Kohlberg Kravis Roberts (KKR), Vornado Realty Trust, and Bain Capital Partners acquired the publicly traded shares of Toys “R” Us for $6.6 billion in a leveraged buyout (LBO). The firms funded the acquisition in large part by loading up the company with billions of debt and stripping out billions of cash. Here is how that turned out, and the billions involved. Read… Brick & Mortar Meltdown: Toys “R” Us Hires Bankruptcy Law Firm
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Years in the future, this story will be an undergraduate course at the Ivy Leagues. How to strip a company 101.
Those who go for a finance career better ace this class. That way, they can help make America great again.
Will the chapters on the multiple bond issues and multiple bankruptcies by the Trump Taj Mahal form part of the course or will that be in the post- grad MBA for advanced students?
Oliver Stone made a movie about it 30 years ago. It was intended to be a warning but is apparently seen by some as an instruction manual on rape and pillage. Five administrations later it’s still both legal and common business practice.
And the movie that basically has the name of this site is headed the same way.
Honesty movie directors should stop giving the hero sour endings if they want the movies about white collar criminals don’t end as examples of “Do not do this cool thing.”
For example was it too much to make the ending of The Wolf of Wall Street to have Denham have a hapy dinner with his family while Belfort is in a golden cage but alone?
BradK – why not, the powers that be have been taking novels like 1984 and Oliver Twist as instruction manuals too.
Oliver Twist actually was a somewhat realistic story of what happened in that era. So it denouncing something that was already happening at least until there was a changes in laws and regulations to stop some of it.
Surely you meant ‘Poison Ivy Leagues’…
‘;]
Years in the future ? Hell thats part and parcel of any MBA degree these days from Ivy League to State University/Colleges along with every For Profit university in the land .
And don’t worry … with their additional courses in the Gospel of Ayn Rand they’re acing it left and right . With the single biggest oxymoron class in the program being Business Ethics .
Reminds me of something I read a while ago: ”The Bust-out”:
”It’s what used to be called a “bust out.” In the olden thymes, the mafia would get its hooks into a local business man who maybe had a gambling problem, a thing for boys or something else he would just as soon not disclose. The mafia would use this to get their tentacles into his business with the vague promise that there was some price he could pay to satisfy them.
Instead, they would run up his lines of credit, skim off all the cash and sell whatever they could out the back door, pocketing the results. Eventually, the business could borrow no more and it would be squeezed dry. At that point they would burn the place down, collect the insurance if any existed and the owner would turn up wearing cement sneakers.”
About the only differences are it’s Kohlberg Kravis Roberts (KKR), Vornado Realty Trust, and Bain Capital Partners instead of The Sopranos and the cement shoes have been replaced with bankruptcy court. Oh and the stores will just be hollow shells instead of torched.
Haha that sounds like Ebay’s early business model. They’d take a few people at random, and using PayPal, clean ’em out. I mean, utterly clean out any and all bank accounts, and anything else they could grab. There was not much fighting back; it’s hard to fight back from a homeless shelter. And Ebay was a new thing so lawyers were not familiar with it and probably considered it like being a day-trading gambler or something. “Serves you right”.
As Ebay matured, they switched over to another model: Grandma dies, and you start selling her attic full of pristine treasures that haven’t been looked at for half a century on Ebay. They go like hotcakes and for good prices, and you get used to that extra few thou a month. But, like all good things, that attic’s bounty ends, and now you kinda need that extra few thou. But, you’ve convinced yourself, you’re an Ebay genius. You really know how to sell stuff. So, because money’s tight, you take Ebay up on their credit card offer, so you have a line of credit at 37% and you hit up the local Goodwills. Now you’re up against some real sharks, by which I mean people who are “pickers” for a living. You don’t stand a chance; buying a lot of crap no one will buy, and now you’re gonna be paying on several thou in debt at 37% until you do a bankruptcy, go off-grid and be a hobo, or take the 9mm opt-out retirement plan.
So it went from “we take’a you munny” to “the first one is always free…”
This was a foregone conclusion when Bain brought in Dave Brandon after driving Domino’s down and then doing the same with the U of Michigan Athletic Dept. The guy has a certain expertise, and it doesn’t tend to make organizations better.
It’s too bad. TRU can be convenient. With a toddler at home it can even be a little fun. That said, when we needed an umbrella stroller, we looked there first but ended up buying a nicer product at 2x the price of anything they carried and it was delivered to the house without hassle. I’m happy to pay higher prices to poke and prod a product and take it home the same day. If the selection isn’t there, it really doesn’t matter. They’re forcing me to look online for the product I really want, and that means there’s more competition, including direct from the manufacturer (what we ended up doing).
They’re not even trying to compete, and that’s what is really sad about the retail meltdown. We’ll, that and all the people who become unemployed because of the mismanagement.
Nobody – this is why I’m ordering things from Amazon so much. Most of the time it’s because I can’t get them locally.
A couple nights ago a bike thief tried stealing my bike from the bike rack at Sprouts. He got 3/4 of the way through my 3/8″ braided cable, and I think got startled by someone.
So I got back here and went online and read a ton on bike cables and chains, and the braided cables are considered pretty good, actually, because they’re darned hard to “worry” through and the thicker ones are too fat to get bolt cutters onto. So I went up to Lowe’s to get a 5/8″ braided cable and a lock to fit it, and they were out, completely out.
It’s got to be a high demand item, so why aren’t they stocking them in time to have some? Plenty of 3/8″ stuff, but lots of empty boxes that held 5/8″ ones. And they had literally ONE good padlock that will fit a fat cable like that.
I ended up going on Amazon and finding a Schlage 5/8″ cable with a built-in lock, so I’ll even be returning the lock I bought at Lowe’s – I’m glad I always save my receipts.
And yeah, on just being able to go in and buy…. if they’d had their cables stocked up properly, I’d just have gotten one there and never even thought about checking online prices.
Get a U-lock too it good for hitting muggers and perverts with. I used to ride a bike in college and I always rode with my U-lock in one of my hands. You have to walk around with a mean look that you will kick ass if you’re a woman in a city.
It’s gotta be hard being a gal traversing the pitted and pockmarked face of San Jose. I’m a fairly small guy but I think the somewhat craggy looks Dad gave me and the fact that my eyes don’t quite line up keep some of the riffraff away, but I’ve still gotten a bit of shit.
Funniest one lately: I’m sitting at one of the outdoor tables at Caffe Frascati and one of the local skanks comes be-bopping along, asks the young couple I’m talking with for a cig, then asks me for a cig and I don’t have one either. She mutters something at me that I and the young couple decide was “Metro”. She called me “metro”.
WTF metro? My gun-shooting, motorcycle-crashing, military-being-in, etc. ass is “metro”? Just because I don’t smoke cancer sticks? Oooooh-Kayyyyy….
Seriously though San Jose is a stabby little old town, and there’s a lot of just plain random scary stuff that goes on here.
The incredible thing about this is that couldn’t make it just another 100 days, when a flood of money would have rolled in. That above all tells you how dire the situation is.
For even the PE gang to balk here and miss a golden opportunity to screw suppliers, staff etc. means she’s a goner.
I wonder how much of an effect iPads have had on the “physical games” market and if this is also a factor?
No doubt. It also is a factor in declining health and a relatively new thing: childhood obesity.
In more than 3 decades of living in Asia I have seen a transformation from almost zero child obesity when I first moved here to today when it is normal.
the one thing most are leaving out is the lowest birth rate in recorded history. Highest rent in Hx. health care costs for employees.
But toy industry sales overall have been growing at an annual rate of 5% over the past few years.
I think this is from the permanent-eighth-grader set, the 40 year olds stocking up on Star Wars merchandise.
@ Derek – Or eccentrics such as myself buying LEGO architecture sets at 60+ .
But no … Wolf is right … toy sales are up … but with Toys r Us so was the asset stripping
A bit of advice given to me by the CH banker cousins ( as in they own the family bank ) when it come to the realities of Private Equity ;
” When you see private equity coming into any of your investments or real estate … take the money and run .. don’t walk .. run .. ASAP ”
Which … is one of the primary reasons we’re remaining OWMNB ( out with money not buying ) when it comes to Real Estate . From Ft Collins to Colorado Springs … private equity snapping up homes and condos as fast as they can
Kids love Minecraft.
I was wondering if it would kill Legos, but a lot of older nerds/geeks buy Lego sets (and My Little Pony dolls.)
Sad very sad
KIR goes 12 years without an exit strategy? Hahahahaha!!!
I imagine Sears cannot be far behind.
When I was kid on the farm we made our own toys out of tin cans, wooden spools, baling wire, bottle caps, nails, & string. They were just fine,and we were happy with them.
Last time I was in a Toys-R-Us store it was a shocking half acre of plastic junk from China–weapons for the boys and girly stuff for the girls–the whole place reeking of bisphenol-a. If all of that were to disappear from the planet, it would be an improvement.
And a cell phone was what you called your pappy on to get you out of the county lock-up, right Old Farmer? :-)
“Old Farmer” You are so right about the need to “disappear” all that chinese crap (that exports jobs overseas). However, the global financial mechanism is one giant Ponzi scheme fueled by over-consumption and rampant population increase: it *must* have these things to continue. There is no benefit to mankind in knowledge, science or progress etc regarding this population increase as [almost] all the populace are trained to be only a rapacious consumption mechanism (or kardashitian) in one part of the world and an underpaid/unpaid indentured slave in the other. No Ponzi scheme can continue forever (just ask Bernie). The laws of nature and physics will make such a delusional system collapse under its own corruption. Since the “feds” around the world started printing money (under whatever “easing” they want to call it), the whole concept of “money” as being a true measure/storage of wealth has gone out the window (actually it was when they decoupled gold from the exchange rates). We are all living in a fools paradise where everyone is chasing a “god” that has no value and are doing things that would be called “insane” on more developed planets. Thus endeth the sermon!
In the Philippines they still make their own toys. My daughter is clip clopping around the house on half coconut shells with a string through the middle of the shell (you hold the strings in your hands to steer the walking).
The sound reminds me of the old Wes Harrison (Mr Sound Effects)”horse walking across a swaying wooden bridge”.
I made tons of my own toys. Kites, fishing poles, wooden swords and knives, heavy cardboard shields, bows and arrows, toy boats and a few bitchin’ toy Polynesian canoes, cat toys, you name it. My #1 toy was a pocket knife because it was the meta-toy, that could be used to make other toys.
I just updated the article: Monday night, Toys ” R” Us filed for Chapter 11 bankruptcy. It’s done!
I wonder, could this be a result of “Boomer” arrogance, greed, and selfishness? That is, the ones who “Did” Russia and Eastern Europe (The Chicago and Harvard boys); asset-stripping anything of value and sending the goodies to China and India.
The economic cows and chickens are returning to the barn and roost, and as usual the peasants have to clean out the poop.
They weren’t ‘boomers’ though, were they. The initiators and promulgators of the economic models which were and are designed to transfer all wealth to the financial speculator (the essence of neoliberalism) leaving behind a ‘serf’ class of low-skill, cheap, expendable workers to serve them are/were all older than than that.
Milton Friedman is not a baby boomer; he was born in 1912…
So easy and so lazy just to blame it on ‘boomers’.
Love to see those overpaid useless PE firms taking a hit again. Let it roll. Hopefully a lot more to come. These are the first signs of the coming collapse of the stock and bond markets which have become nothing but a Fed induced Ponzi scheme at this point.
Unfortunately there is collateral damage. I would bet that in a reach for yeild, many insurance companies, retirement funds and pension funds (hello government employees) own these now worthless bonds. The people who chose them, the fund managers, will probably not suffer, but the people who bought them, your average investor or retiree, will eventually take a hit.
They didn’t take a hit. They purposely bankrupt these companies and make out like bandits. They take all their cash then use debt to buy it and then file chapter 11 to disappear the debt.
Well, the basic rule when a PE firm buys a company is 20+80, ie 20% paid in cash or eqvivalent, 80% debt that is baked into the balance sheet of the bought company. Then they axe all expenses like R&D etc and suck out that 20% paid plus a lot more while adding a helluva lot of debt to the balance sheet of the company. When they are through with this they sometimes manages an IPO and thus cashing in still more on a debtfilled shell of a company that is paralysed by debt etc bestoved on it by their PE owners. Even if the company goes bankrupt instead of an IPO the PE owners do laugh all the way to the bank. Wall Street 101. The loosers are employees, supliers etc but not the PE company.
Hi Wolf,
Hope you’re well, great article and well done on picking up on this story a few weeks ago.
Can you answer a question for me please why aren’t Toy R Us in Australia and Europe part of the bankruptcy proceedings?
Regards
Steve
It’s a bit complicated.
Most Toys R Us stores outside the United States (about 70%) are operated by subsidiaries directly controlled if not owned outright by Toys ‘R’ Us Inc. These subsidiaries, such as Toys ‘R’ Us LLC (Europe), will be included in the bankruptcy procedures, for no other reason they are “assets” owned by the company which filed for bankruptcy.
Their ultimate fate is uncertain and will probably be decided on a case by case basis.
However the remaining 30% or so of stores are neither controlled nor owned by Toys ‘R’ Us Inc. They are operated by foreign companies which merely licensed the name and logo from the parent company. Most of these stores are located in the Pacific Rim and operated/owned by Korean giant retailer Lotte Mart, itself a member of the Lotte chaebol.
These will probably continue to operate as long as Lotte feels like paying licensing fees to whoever will end up owning Toys ‘R’ Us Inc.
Thanks MC for the reply-answer.
Best Regards
Steve
Stevedcfc72,
The foreign operations are separate entities, capitalized separately. That is not to say that some kind of bankruptcy filing might not follow in those jurisdictions at a later time.
Chapter 11 is an effort to stiff creditors and to continue operating under the supervision of the courts. It often means that ownership changes from equity holders to creditors. So for now, the intent is to keep the company operating but to force creditors to accept losses, and for equity holders to hang on to as much as possible. My understanding is that the overseas operations are less indebted than the US entity. This will become clearer over the next few months.
Thanks Wolf for the answer.
Best Regards
Steve
Wolf. Several articles I have read stated that this store has a 60 pct chance of closing in the next 12 months and 90 pct in the next 5 years. Your article again is more in depth with the bond outlay payments than any others I have read by the so called know it all about nothing business networks. Even with bankruptcy and re negotiating these bonds I see no way out for them
All we can say right now about long term commercial viability
hinges on the DIP financing (Debtor in possession). And there appear to be no shortage of lenders lining up to loan them new funds. However, this is lifeline type stuff, fairly short term in nature, and not full access to capital markets.
If they can shed enough of their debts in bankruptcy, they will have a chance. But creditors might not go along with those types of losses. They might prefer liquidation. So that’s what they will deal with in court.
Beyond their debts, they have a business model that is in trouble (brick-and-mortar retail) and they didn’t invest enough to build a vibrant online brand… they have ceded that to others. That’s actually a more profound problem. So this may well be a case where the company emerges alive from bankruptcy only to file again a few years later, possibly liquidation. Several retailers have already done this.
They will get out of bankruptcy and do it again. I read on ZH they now have a name for it, they call it Chapter 22 bankruptcy, when you declare Chapter 11 twice. There should be laws against such obvious and rampant fraud. Instead it funds asset hyperinflation and runs for the white house.
Minor correction Petunia…
Instead it funds asset hyperinflation and runs the white house and the Congress since at least 1985.
Once we had factories that built real, sustainable wealth via production and export.
Now the Chinese do that, and instead we have ‘economic growth’ via debt creation and ‘leveraged buyouts’.
Would be interesting to know if TRU owns any real estate and, if so, whether that’s been hived off into a separate entity prior to this debacle.
The TRU bankruptcy adds a bit to the pile, another bit which tends to support my theory that the U.S. economy is contracting, and not expanding, and that U.S. GDP growth is actually negative, and not positive, and that official statistics and the stories are often gamed to make it seem otherwise, so as not to unduly alarm the American lobster in the corporatist pot, but then, so does a preponderance of other statistics and other stories. Today the pile is very slightly larger, and it is easy to predict that tomorrow the pile will be slightly larger still.
One might notice that the goal here is to eliminate the ability of the general population to resist subjugation and efficient exploitation by capturing its wealth and it political power, all the while promoting a program to persuade the general population that the country is a prosperous functioning democracy, when in fact it is not at all. The reality of the situation is suppressed and distorted because it does not serve the purposes of this goal.
As Dr. Gould was so apt to remind us, at least, those who were paying attention in class, the successful theory is the one which accounts for the facts, and, after all, sometime, a theory is also a fact.
Today, the world is that much farther away from one that is peaceful, prosperous, just, and sustainable, as it continues to accelerate the unhappy entropic pursuit of its own demise.
Just saying.
We just bought some items for my daughter at the closing sale for a beautiful independent toy store. All high-quality goods, mostly not found elsewhere (including online). No plastic in sight. Don’t know what their financial position was, but they definitely didn’t have billions in debt racked up by a PE firm. The retail abyss is effecting everyone, not just the poorly operated stores.
I don’t have a little one anymore so I don’t know what is popular with kids anymore, but when I think about the toys I see kids play with these days, all I can remember is seeing them on smart phones. I have seen kids in strollers on a smart phone. The last time I saw a kid with a doll was in the local thrift store, a kid who obviously can’t afford a smart phone, or a new doll.
The kid was probably at the thrift store hunting Dolls to VLOG about them on YouTube for ad revenue and Patreon donations.
I’ll take a wild guess that your kids all have smart phones and get their nails done at what passes for a little girl’s birthday party.
All I know is take a drive down any middle or upper middle class neighborhood with a garage door or two open and you’ll see first hand the extent of toy purchasing in the US as they leave their cars in the driveway because the garage is stacked to the rafters with toys their kids hardly knew they had never mind played with
Retail has become all about who can deliver it to you the fastest and the cheapest. Most are turning to Amazon since you can order your wants and your needs all from one place. Brick and mortar retailers that sell the same goods as everyone else but for a higher price are doomed to fail. Toys R Us is setting an example for the rest. Anything brick and mortar better offer some world-class service and a memorable experience otherwise no one’s going there.
Amazon lets people shop, while at work. Dedicate personal time to playing with your toy instead of driving around spending money to buy them.
It amazes me how the 2018 bonds traded for $.97 on the dollar (near face value) two weeks ago, but only $.21 yesterday. The likelihood of bankruptcy should have been known all along.
More fallout caused by Central Bank intervention, which creates comfort in the short term but big negative surprises in the long-term
Caused by central bank intervention..? Or the greed of the financial speculators who who initiated the LBO and extracted cash from the business after loading it with debt..?
I guess we see what we want to see based on our own ‘confirmation bias’ – and some of us would rather blame it on ‘gubbinment’ rather than face up to the fact that it’s a product of unbridled greed and self-interest; which has become normalized since the 1980s.
brick and mortar needs to rethink its entire business model.
Maybe something bigger than that is needed…such as revisiting why the ‘limited liability’ company concept allows human beings to rack up massive debts – then walk away without any personal liability.
Difficult one for the libertarians, that one, given how central the ability to avoid the moral obligations of these debts are to our ‘prosperity’.
TRU Canada to follow in bankruptcy.
My 2 kids are almost 30yo and we just didn’t spend much time there when they were growing up. They would rather make something or do something. Ended up going two years ago for an “order online and pick up in store” purchase on the way to a baby shower. It took over an hour to pickup. Very unorganized. To make matters worse there was no large bag to wrap it in or any gender neural bows. I had to get a hideous Bicycle bag and cut it down (luckily I have a Leatherhman tool in my car). I couldn’t believe how asleep at the wheel they were in missing out on a diverse assortment of paper, bags, bow and cards. What a missed opportunity.
Or should I say they are/have been asleep at the wheel for some time on all fronts….add PE into the mix and the time comes to listen to the fat lady.
When I lived in Silicon Valley, ToyRUs and BabiesRUs would always be pretty busy. I think most of that was because of the BabiesRUs and the fact that WalMart has little presence there.
I moved to the Midwest recently and the place is a ghost town with WalMart and Target just a stones throw away. Went this past Saturday and my kids and I were the only people there. Even right before Christmas it was only moderately busy. I only go because the kids like Legos and it’s less obnoxious than Target or Walmart. There’s just nothing there to drive people in.
The problem is that nobody is actually competing with Amazon in areas they can win. Amazon is cheaper and faster and but they are extremely vulnerable to quality and supply chain problems. If a company really wanted to complete they could order a bunch of Amazon toys and have them tested for fakes/contamination and release a press release about all the dangers of lead in toys from Amazon just in time for Christmas rush. A well done media campaign could keep that in the spotlight for the entire season.
It’s not even hard to find the fakes just look at the reviews.
Ummmmmm and Amazon is being subsidized by the USPS which allows them to offer free shipping all the time. Amazon is not that great, not sure why everyone thinks it’s such an amazing company.
The problem with Toys R Us is they have become nothing but a pipeline for corporate and Hollywood branded toys. It’s a joke. Just about everything they sell now is based on the latest kids’ movie or action heroes. Every aisle for boys is some sort of brand like Transformers, Teenage Ninja Turtles, Power Rangers, Minions? I mean Minions? Really? I hardly doubt Minions are even that popular anymore among young kids. Plus the price of toys has sky rocketed and the quality is no better than it was in the 1980’s. Heck I’d say much worse. Tonka trucks used to be made out of metal…….everything is plastic these days.
I like to refer to Toys R Us as a store full of future landfill.
The TRU bankruptcy made me look at the toy chain I went to growing up, Child World.
I knew that it went out of business, but looking at the Wikipedia entry, it looks like PE was at least somewhat involved there too.
https://en.wikipedia.org/wiki/Child_World
Wolf and others have written about poor mix between private equity and retail chains. But it looks like toy stores are an especially bad choice because the business is highly seasonal, dependent upon hit toys, with fickle customers.
I remember KB Toys growing up, which I could find in most malls around my area. They went out of business for good in 2006, and sure enough they were owned by Bain Capital just prior to their bankruptcy and subsequent liquidation.
Hi Wolf,
Another interesting angle to the Toys R Us story is the issue now facing the Toys Manufacturers, Mattel and Hasbro for example.
Just reading 11% of Mattel’s sales go to Toys R Us, Hasbro 9%.
They are the second biggest customer behind Walmart.
In effect higher margin business with Toys R Us will go and end up being replaced with Amazon for example at far lower-tighter margins.
In an article I’ve been reading its in Mattels-Hasbro’s interest to keep the Toys R Us stores trading by whatever means.
In 2016 the birth rate in the United States was the lowest it has ever been.
* 62 births per women aged 15 – 44 = down 1%.
* among women 20 – 24 the decline was 4%.
* for women 25 – 29 it was 2%.
* the decline in teen is across the board – teen pregnancy is definitely down.
* Yes it’s below replacement level – but not dramatically so.
* The US has a high influx of immigration that compensates for it.
I despair at this consolation to justify the fact that America is – FAST –
losing it’s ability to have babies – ‘we have high immigration levels’.
The capacity for the population in the US to have babies is decreasing & that is okay – ?
Because ?
The immigrants to the US are also experiencing below replacement levels of fertility – dodo – it is a world wide phenomenon.
So – the toy industry is experiencing lowest ever sales – so much so that they have become bankrupt.
Wow – how is this possible – kids love toys & mom & dad love their kids.
Toy’s R Us needed to keep an eye on their potential customer base – isn’t this a basic & necessary business practice ?
Go figure what went wrong – right !
Toy sales have been up 5% on average every year for the past few years. Toy sales are robust. It’s just that Toys R Us is losing market share.