The famous toy company, Toys R Us, has filed for Chapter 11 bankruptcy reorganization at the Eastern District of Virginia in Richmond.
Bankruptcy reorganization is when a corporation will go in front of a court of law to join with another organization. If the reorganization is confirmed, the company may take out a loan from the government. The company is then placed on a repayment plan, staying protected from creditors’ claims for the time being.
Toys R Us is one of the many companies who fell victim to the increase in popularity of internet shopping sites such as Amazon or Walmart, as they have such low prices making competition for consumers very difficult. Although Toys R Us had its own online shopping space, it doesn’t receive as much foot-traffic as other sites selling the same name brands.
Toys R Us was founded in 1948 by Charles Lazarus with a “strong commitment to providing a learning experience through play.” Quite rapidly after, it became one of the most popular places for families to shop for children’s toys.
Today, there are more than 564 Toys R Us locations throughout the United States. In 1996, Toys R Us expanded its empire and developed the first, and largest of its time, baby products retailer named Babies R Us. As of now, this chain has roughly 230 stores dedicated strictly to providing safe and durable baby products to expecting parents.
In 2005, Toys R Us formed an investment trio with firms Bain Capital, KKR & Co and Vornado Realty Trust in Wayne, New Jersey. This transitioned the company to become privatized. Due in large part to this consolidation, Toys R Us has now been struggling to manage under $5 billion of debt.
Today, the company has already received more than $3 billion in financing from lenders. This will ensure the Toys R Us stores keep their products on the shelves and they will “continue to be delivered to stores in a timely manner.”
Chief Executive of Toys R Us, David Brandon, explained that “today marks the dawn of a new era at Toys R Us where we expect that the financial constraints that have held us back will now be addressed in a lasting and effective way.”
Brandon also wanted his customers to know that they can “continue to count on an outstanding shopping experience and excellent service whenever, wherever and however they choose to shop with us.”
Toys R Us is not the only retail chain to take a hit against the increase in online retail spending. Companies such as Payless Shoesource Inc., Gymboree Corporation and True Religion Apparel Inc. have also filed for similar bankruptcy protection.
Brandon said back in April that this shift in e-commerce popularity will “continue to create significant challenges” and that the pricing for online products was very aggressive and unattainable for the company to compete with as many of the websites additionally included free shipping or two-day shipping.
Although the trend in toy sales across the United States has stayed very consistent, the platform in which consumers purchase the products has shifted towards online shopping. According to the NPD Group Incorporation, the US toy sales rose 6% in the 2016 year on top of a 7% increase in 2015. It is believed that this is the largest increase since 1999 because of demand for toys associated with many blockbuster movies.
For now, the Toys R Us corporation has no idea how long it will take, if ever, for the company to repay its debt back.
Featured image via Dreamstime