Slumping sales and mounting debt led the toy retail chain to file for Chapter 11.
Toys ‘R’ Us has suffered from slumping sales and growing competition from retailers like Walmart and Amazon, and amassed a staggering $5 billion in debt as it slashed prices and engaged in costly licensing deals to stay relevant, according to CNN. Now, the toy retailer has filed for Chapter 11 bankruptcy in an effort to save the company. Toys ‘R’ Us has pledged $3 billion in bankruptcy financing that it will apply to restricting the company, alleviating its debt burden, and engaging in store reboots.
Under the plan, Toys ‘R’ Us plans to keep its 1,600 stores open as it heads into the busy holiday season, but this is becoming an almost clichéd outcome for brick and mortar retailers. The industry is seeing sales fall industry as malls get quiet and consumers go online. While Amazon’s toy sales rose by a quarter to $4 billion in 2016, Toys ‘R’ Us revenues fell in the same year. The company hasn’t reported a profit since 2013.
One problem the toy retailer faced was its failure to address a web presence that could have helped it compete and draw in more tech-savvy consumers, as Forbes pointed out. Toys ‘R’ Us did not make the necessary investments in online retail until May 2017, when the retailer announced plans to revamp its website as part of a $100 million, three-year investment in its ecommerce business.
Now, Toys ‘R’ Us says it’s “undertaking a financial restructuring to ensure the iconic Toys’R’Us and Babies’R’Us brands live on for many generations.”
"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 be addressed in a lasting and effective way," said CEO Dave Brandon in a statement. "Together with our investors, our objective is to work with our debtholders and other creditors to restructure the $5 billion of long-term debt on our balance sheet. . . . We are confident that these are the right steps to ensure that the iconic Toys’R’Us and Babies’R’Us brands live on for many generations."