Six months after filing for Chapter 11 bankruptcy protection, Toys ‘R’ Us is reportedly preparing to liquidate its U.S. stores altogether. The retailer had already made the decision to close 180 of its 800 remaining stores between February and April 2018, and it has failed to find a buyer or reach a debt restructuring deal with its lenders, according to Bloomberg.
The situation is still fluid, but a U.S. brick-and-mortar shutdown is becoming increasingly likely, the report said. Talks are being held to offload the retailer’s growing Asian business, the company’s most profitable arm, while the UK unit put itself in the hands of a court administrator. It’s not yet clear what will happen to the Canadian unit, which filed for bankruptcy protection at the same time as the U.S. division.
Toys ‘R’ Us has had a difficult task on its hands, seeking to figure a way out of $4.9 billion in debt, particularly $400 million due in 2018 and $1.7 billion more due in 2019.
A JPMorgan-led bank syndicate and a group of existing lenders initially agreed to commit $3.1 billion in debtor-in-possession (DIP) financing to support operations during the restructuring. But Toys ‘R’ Us and its lenders have been on shaky ground since the holiday season, with the retailer at risk of not having enough cash to satisfy the terms of the loan.
The downfall of Toys ‘R’ Us can be traced back to a $6.6 billion leveraged buyout in 2005, when Bain Capital, KKR & Co. and Vornado Realty Trust loaded the company with debt. For a decade, the retailer was able to refinance its debt, but the emergence of online competitors such as Amazon and Walmart weighed on bottom line results. The company’s huge interest payments also forced it to use resources that could have gone toward improving technology and operations.
And ever since the bankruptcy filing, the retailer has been under immense pressure to give major vendors such as Mattel and Hasbro clarity into its long-term viability.
Under bankruptcy protection, Toys ‘R’ Us executives had thought the company would be afforded the financial flexibility to drive its turnaround. The retailer started seeking alternatives for bringing in customers, maximizing revenue and differentiating itself from competitors. The retailer began opening “Play Labs” at 42 stores to add to the brick-and-mortar experience, and planned to open an online marketplace in 2018.
Store closures have been an issue for the company for a few years. In 2015, Toys ‘R’ Us shuttered its two most iconic locations: the longstanding Fifth Avenue FAO Schwarz store, as well as its NYC flagship store. A year later, Toys ‘R’ Us sold the FAO Schwarz brand to ThreeSixty Group, a toy manufacturer. A temporary Apple store moved into the old FAO Schwarz spot in 2017.