Say it ain’t so, Toys ‘R’ Us, the former number one store to buy toys is in financial trouble. The toy giant has hired attorneys from the law firm Kirkland and Ellis to come up with a solution to their 400 million financial debt which could include bankruptcy.
The 400 million currently due this fall to financiers is just part of their overall estimated long term 5 billion debt according to their end of quarter reports.
Unfortunately, one of several options is bankruptcy according to Neil Saunders, managing director of retail consultancy GlobalData.
“If they cannot reach sensible agreements with lenders or find ways of restructuring their debt, it is a very distinct possibility,” he said. “It would also be helpful in giving Toys R Us some flexibility to exit leases and stores that they no longer want.”
With the holiday season looming, their timing couldn’t be worst to consider layoffs and store closings.
“Bankruptcy at this moment in time would be damaging,” Saunders says. “It would make consumers nervous about buying bigger ticket items from the chain as the lucrative holiday period approaches.”
Bankruptcy is not the only option for the toy retailer as they could secure financing from other sources but that could also be damaging as their debt may increase.
In this new era the retailer has more competition then ever before, venues such as Walmart, which is the current number one toy seller in the country. Amazon and other internet based toy stores have also played a part in the classic retailer’s money problems.
Toys R Us has acknowledged that it fell behind the digital curve at a time when more consumers are shopping online. It has invested nearly $100 million in its e-commerce operations in the last three years, and it recently revamped its website.
TRU stores have tried to stay competitive with the ever changing toy market by including high end figures for the adult collector. Sales of these high priced items have not affected the retailer’s bottom line as most of their sales rely on the bargain hunting parents.
Recently Toy ‘R’ Us returned to Times Square in New York City in a reduced venue just in time for the holiday season. Many are speculating their return to the Big Apple will have an impact in their next quarter.