Toys “R” Us, one of the world’s largest toy store chains, has filed for bankruptcy protection, becoming the third largest retailer of all time to file for bankruptcy.
The company made the Chapter 11 bankruptcy filing late Monday night in federal court, acknowledging that it needed to revamp its long-term debt totaling more than USD$5 billion.
The private equity firms Kohlberg Kravis Roberts and Bain Capital, as well as the real estate firm Vornado Realty Trust, purchased the company in a leveraged buyout for about $6 billion in 2005.
In a statement on Monday night, Toys “R” Us said the filing would help the company invest in long-term growth and “fuel its aspirations to bring play to kids everywhere and be a best friend to parents.”
The fall of the toy giant has been credited to the retailer struggling to keep up with Amazon and stores like Walmart.
The company said its roughly 1,690 Toys “R” Us and Babies “R” Us stores around the world, including in Australia, Asia and North America, would continue to operate as usual.
The bankruptcy is the third largest in the US of all time, following Kmart Corporation (USD$14 billion in assets) and Federated Department Stores ($7.9 billion in assets) which is now Macy’s.
Meanwhile, its sales have failed to keep up with its debt load, with investors blaming its poor performance on its weak online push. While the company posted $11.3 billion in sales in 2000, that figure was at just $11.5 billion by 2016.
The timing of the filing comes just before the holiday season, which is a critical time for any toy retailer.
No analysts expect Toys R Us to disappear. But most experts agree it will need radical changes to survive. And in a world where Walmart, Target, Amazon and even drugstores and discount fashion stores like T.J. Maxx are selling toys, any missteps could help those competitors gain an edge.
For Toys R Us to be able to refinance its debt, it will have to convince bondholders that retail still has a robust future.
According to experts at Bloomberg, the company will likely survive as “manufacturers such as Mattel Inc., Hasbro Inc. and closely held MGA Entertainment Inc. need the last remaining toy chain.”
During a Chapter 11 bankruptcy filing, a company continues operating to give it a chance to come up with a plan to repay at least part of its debt. The toy chain has received a commitment for more than $3 billion from new and existing lenders to ease its debt burden and fund operations during bankruptcy.
Both Mattel (Barbie) and Hasbro (Transformers) remain confident of the retailer’s future, even going as far to call Toys “R” Us one of their most important retail partners.