September 25, 2017
Toys R Us Files Bankruptcy in Bid to Survive
Toys R Us has a load of debt. Serious debt. The kind of debt that forces you to make $400 million in interest payments alone every year. And that has the toy company seeking bankruptcy protection.
The debt stems from the company’s $6.6 billion leveraged buyout in 2005. Toys R Us has been trying to live with that debt for more than a decade, but this year the clock finally ran out. And now the company has filed the biggest bankruptcy since Kmart 13 years ago.
Media outlets reported that investors were surprised, though perhaps not shocked, by the news. They knew Toys R Us had done well with its creditors for some time, managing to cut deals with creditors to avoid taking this step. Now, with slow sales and more than $5 billion in debt, Toys R Us could no longer play the game.
The timing could be worse for the toy company, but not much worse. In another month, many customers will begin buying for the holiday shopping season. For toy companies, the final calendar quarter of the year is “black season,” the time when the books are balanced after, often, running in the red much of the year.
Now, though, even the upcoming holiday season may not be enough to give creditors the confidence they need in the company’s ability to get things moving in the right direction.
And that’s where the PR aspect comes into play. It’s no secret that consumer buying trends are changing. Each year over the past decade, more and more consumers are choosing to buy online, rather than come into a retail store. Those trends show no signs of changing, and Toys R Us is struggling to figure out what to do to get more customers coming back into their stores.
The company has some specific numbers they are trying to hit. To make that happen they need more customers, and that means figuring out ways to get people re-energized to shop in their stores and online. That’s a tough sell, because today’s parents, even those who grew up as ‘Toys R Us kids’ are finding other places to buy for their own kids.
It’s a challenge being faced by every brick and mortar retail store, but few if any are carrying the amount of debt Toys R Us is contending with. Those numbers are real, and, this time it seems, they aren’t going to change.