Toys “R” Us- once a source of joy for children around the world, has closed all of its global stores, thus, marking the end of this chain. It was once a king of the toy castle, evident from the fact that as soon as the news broke out, Toys “R” Us would be closing its doors for good, millennials across the US were singing, “I am a Toys “R” Us kid”. They asserted- “The end of Toys “R” Us is the end of an era.” For those of you who don’t have the slightest idea about what Toys “R” Us is, let me decode.
Beginning in the 1950s, Toys “R” Us emerged as the biggest toy seller in the US, expanding rapidly over the years as it pushed out chains globally. As the name suggests, it was known for its endless supply of the latest toys and expensive catalogues. Throughout its 70 years in business, the company expanded its 1,600 stores worldwide and eventually became a massive big-box chain and a symbol of American retail. It spread out to dominate the toy industry and pushed competitors out of business through radio and television marketing. No one had ever seen anything like this. The company also had a huge flagship store in Times Square which remained open for 24 hours to cater to tourists who yearned to place a hand on Toys “R” Us’ shelves. At times, its stores remained open for 88 hours straight just before Christmas.
But this chain of megastores, weighed down by nearly $5 billion in debt, filed for bankruptcy in 2017. It was the end of the store that once held a lock on the entire toy industry and made toy shopping, once a seasonal treat, into a regular family outing. In 1998, Walmart began selling more toys in the US. Was this the beginning of the end? Or perhaps it was when the company was bought out by private equity firms in 2005? Now, let us find out why did Toys “R” Us fail?
The undercutting of prices by Walmart in 1998 served as a sign for trouble ahead. At one point, Toys “R” Us was considered as the most important toy store in the world. But even with its first-rate toys and hundreds of stores, it could not keep up when faced with competition from retailers like Walmart, Target and most importantly, Amazon. While Toys “R” Us, being a brick and mortar store, was still pulling $792 million annually in the 2000s, it wasn’t swift enough to compete with a giant like Amazon. When the company finally decided to revamp its website in 2016, its uphill battle was to catch up on 10 years of innovation. Consequently, the company struggled in the face of rising e-commerce popularity. In the liquidation filing, Toys “R” Us pushed the blame for its poor performance (which was low enough to prevent it from competing and making a profit) on Walmart and Amazon.
Amazon and Walmart are not the only factors to blame for the sinking of Toys “R” Us. By the time the company filed for bankruptcy, it was drowning in debt. Therefore, the seeds for its collapse were sown way before, in 2005, when private equity firm Bain Capital along with two other firms purchased Toys “R” Us for $6 billion. They paid $1.2 billion out of their pocket while the rest was borrowed. It was Toys “R” Us that was held responsible for paying back the remaining $4.8 billion its investors owed. As a result, it was then called “an ATM machine for Wall Street”.
The company had to pay $400 million per year to service its debt, an amount higher than its annual profits which made it impossible for the toy company to keep up. Such mounting levels of payments prevented it from introducing changes necessary to compete. For instance, it did nothing to improve the in-store experience or to maintain its store standards to compete with e-commerce giants. Most importantly, as the company struggled to pay its debts, the lenders exerted pressure and pushed the management to pursue a complete liquidation of its US business.
Enduring the after-effects of the 2008 financial crisis, the company registered for an IPO in 2010, but the market stalled and sales continued to decline leading to the withdrawal of its IPO registration in 2013. Now the end was near. Toys “R” Us filed for bankruptcy in 2017. A motion to liquidate its business was initiated which meant either closing or selling almost all of its stores. It shut down its website and held mega sales to get rid of its merchandise and assets. It closed its Britain stores in March 2018, followed by shut down of US stores in June. Their Australian branch opted for voluntary administration in May but closed down in August 2018 while chains in Canada, Asia and Europe were eventually sold to third parties.
As the news about its financial situation and closure became public, shoppers mourned their favourite childhood chain. Protests and rallies were held inside stores and in parking lots with politicians to getting involved. Toys “R” Us also made headlines for unethical treatment of 30,000 retail workers who lost their jobs. They weren’t even paid for the work they did, despite the fact that executives received millions of dollars in bonuses. Workers also took their fight to Congress, lobbying in Washington for more oversight of private equity deals in retail. This was the only silver lining in the cloud, as employees and consumers were fighting back to hold Wall Street accountable for the investments it allowed, as it was pointed that company’s debt was a result of “Wall Street greed” on the part of investors.
Now, shoppers believed that their beloved store was gone and it looked like it was all over. But their joy rekindled when it seemed Toys “R” Us might not die along with their childhood dreams. The company declared that it was going to abandon the sale of Toys “R” Us name and branding and would hold on to them instead. This decision was in part made as some of its existing owners wanted to retain brand’s intellectual property because they were developing ideas to resurrect the brand in a new and imagined way. In June 2019, Toys “R” Us emerged from bankruptcy as “Tru Kids” with its stores opening at 2 locations in the USA.
As owners were holding on to its most valuable assets and trying to find a future for the company, Coronavirus pandemic unleashed. As a result, consumer spending turned to an all-time low. Now, it is unclear if the brand will return to its former glory. It is a matter of time to see whether the store would revive or its comeback will remain wishful thinking.
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Currently pursuing Economics (Hons.) from SRCC, Simran is an avid reader and is always on a lookout for some ‘real’ knowledge. She is a proud member of BTS Army and has an innate obsession for Sundays. She often finds herself stuck in the rat race and struggles to have a consensus between her heart and mind.