Toys ‘R’ Us filed for Chapter 11 Bankruptcy this week in the United States—and plans to soon make a similar filing in Canada where it has 70 stores. Excuse us if we wax nostalgic over the prospect of the company disappearing (many of us bought a first toy for ourselves or kids there), but the company insists it has plans to stick around after it restructures a mountain of debt. For now it insists it’s business as usual, for its stores, gift cards and loyalty programs. Here are five things you need to know:
1. How long has Toys ‘R’ Us been around? Since Charles Lazarus opened a baby furniture store in 1948, Toys ‘R’ Us has grown into the leading retail brand that caters exclusively to kids, toys and games. Toys ‘R’ Us has 1,600 toy stores in 49 U.S. states and 38 countries. Its loyalty program claims 19 million users in the U.S. and 12 million worldwide.
2. Is it because toys aren’t selling anymore? No, toys are selling very well worldwide—even at Toys ‘R’ Us. But the company had a debt problem and is facing the same challenges as a lot of other bricks-and-mortar stores. But the big-box toy retailer is struggling with $5 billion in long-term debt, which it spends $400 million a year to service. Toys ‘R’ Us hopes to restructure its debt, get a new growth plan and reorganize its stores.
3. So is this the end of Toys ‘R’ Us? That depends on its restructuring efforts. Even though 40 percent of the chain’s sales happen during November and December, there are lots of reasons why retailers file for bankruptcy and it’s not necessarily a death sentence. If Toys ‘R’ Us can emerge from bankruptcy with less debt plus money to reinvest in its business, the process could mark a turning point. The hope is that it will then have the money to make the investments necessary to improve its competitiveness in the cut-throat retail space—much like Best Buy did over the last five years.
4. Will it be business as usual for customers? According to a company spokesperson, all Toys ‘R’ Us and Babies ‘R’ Us stores and e-commerce sites are open for business as usual. Loyalty programs, gift cards, and the baby registry remain the same and the store plans to offer the “hottest toys” this season. But retail analysts caution there could be challenges for the company in maintaining productive ties with suppliers. “Hasbro, Mattel, and Lego make 10 percent their sales to Toys ‘R’ Us,” says Bruce Winder, co-founder, and partner with Retail Advisors Network in Toronto. “If they ship blindly to Toys ‘R’ Us they could be on the wrong side of a receivership and go to the back of the line when it comes time to get paid.” Still, if all goes well, stores and online inventory should have what consumers expect.
5. What should you do? Questions will linger as this plays out. If you’re totally worried about the company’s prospects, there are lots of places to buy toys and be confident you can return them after the winter holiday if your niece really wanted a stuffed tiger instead of a giraffe. As for inventory on the shelves, the real test will be in December. If you buy gift cards, there is the risk that they may not be honored if the company fails to get a restructuring done. Same thing with the store warranties.