Mounting debt and increasing competition from online vendors forced toy and children’s goods retailer Toys R Us to file for bankruptcy this week, according to a company statement.
The move to seek protection from its creditors puts Toys R Us in the company of a host of other long-established retailers, such as Gymboree, Payless and Perfumania, that have had to file for bankruptcy as they lose customers to online outlets like Amazon.
Taken over by private equity firms Bain and KKR in 2005, Toys R Us has 875 US stores and 1,600 worldwide. It specializes in toys, but also clothing, party supplies and sporting goods for children. It also owns the Babies R Us chain of stores.
Nonetheless, the store said operations should continue as normal for the foreseeable future. Indeed, bankruptcy in the United States does not necessarily mean the end of a business: It simply makes it easier for the company to shut down unprofitable sites.
“Stores around the world – the vast majority of which are profitable– are continuing to operate as usual,” read a company statement.
But the chain will, for the time being, be able to ignore loan servicing. When it was purchased in 2005, its new owners forced it to
take on significant debt to fuel operations.
“Together with our investors, our objective is to work with our debtholders and other creditors to restructure the 5 billion dollars of long-term debt on our balance sheet, which will provide us with greater financial flexibility to invest in our business,” said chairman and chief executive Dave Brandon in the statement.
Nonetheless, a bankruptcy so close to Christmastime for a toy retailer unsettled the US stock market. Toy manufacturers like Hasbro and Mattel saw their shares stumble on the news. Both have reportedly cut back on shipments to Toys R Us out of concern the retailer will not be able to pay its bills.
