Toys R Us Bankruptcy - Rise and Fall - lessons

By pjain      Published July 26, 2019, 10:21 p.m. in blog Invest   

DNA of genesis - Baby Furniture, Car seats and Gear was the key!

  • 1948 Toys "R" Us traced its origins to Lazarus's children's furniture store. Its history traces back to a post-World War II baby furniture store

  • June 1957 - Founded by Charles Lazarus as corporation with chain stores. He added toys to his offering, and eventually shifted his focus.

Success - Rise as Toy King Maker and Category Killer for the Baby Boomers

Toys "R" Us expanded as a chain, becoming predominant in its niche field of toy retail, and also branched out into baby supplies and children's clothing. At its peak, Toys "R" Us was considered a classic example of a category killer.

Many decades as the country's largest dedicated toy emporium. It provided mile-long aisles filled with a plethora of toys,

At its peak, it had been in the toy business for more than 65 years and operated around 800 stores in the United States and around 800 outside the US, although these store numbers have steadily decreased with time. The chain employs more than 30,000 people in the U.S. before the bankruptcy and includes Babies R Us stores.

In 2016 its revenue was $11.5b but it lost $36m on that, with total assets of $7b.

In 2017, Toys R Us accounted for roughly one-fifth of toy sales in the U.S..

SEG: Core Steady Babies Business vs Hype-competitive and Seasonally volatile Toys

  1. For many years, it kept opening BabiesRUs often in same parking lot as a ToysRUs. PKJ thinks that splitting BabiesRUs was a mistake. It split its consumer focus creating a discontinuity and split!

  2. Blaming market pressures in Toys (primarily competition from Walmart and Target), Toys "R" Us considered splitting its toy and baby businesses so it can exit toys by selling that brand. Perhaps that is why it split out BabiesRUs with the core steady non-seasonal "core business" of babies and furniture for them.

  3. This recognition of a split hurts was after the buyout, on August 23, 2011, Toys "R" Us announced it would begin to open combined Toys "R" Us/Babies "R" Us stores, with 21 new stores using the concept (11 of them having a full-sized "superstore" format), and 23 remodeled into the concept. The new locations were being built in Alabama, California, Georgia, New Jersey, and Texas.

SEG: Key Factors for Toys

  1. The toy business is seasonal — three-quarters of sales take place during the holidays. Since the toy business is incredibly seasonal, more than 40% of the company's sales come in during the fourth quarter of the year.

  2. Toy and Furniture Cherry picking by Big Box Mega-Stores! Anything that is name brand will get sold by competitors who can survive on far smaller margins.

  3. To balance seasonality, Babies and Kids Furniture is Vital, But supply chain is vital to compete with far cheaper mass products sourced by Walmart and Target.

MGT KEYs: How ToysRUs Used its Category Focus to Win in the Past - Keep'Em Coming

  1. Maximum Variety in its Category - not top 5 brands! If you have dozens of varieties of diapers

  2. Diversity is needed to balance and keep foot traffic.

  3. MERCHANDIZING Wins or Kills: Inventory management, Floor Space, Seasonality

  4. Role of Gift cards was very high. Basically instead of stressing out relatives, parents and grandparents would just buy Toys R Us gift cards for them to shop later on! But was it easy to buy online? This often became a big source of funding for the company, and even profits.

Internal Mistakes

The chain employed more than 30,000 people in the U.S. .

  1. 2000 new CEO John Eyler launched an unsuccessful, expensive plan to remodel and re-launch the chain.

  2. 2005 buyout heavy load of $5 b debt inherited in PE Bain and KKR and Vornado took it over with debt. As a consequence the corporation paid heavy interest fees. Its stock closed for the last time on July 21, 2005 at $26.74—a 63% increase since when it first announced that the company was put up for sale.

  3. FAO Schwarz May 2006 acquisition of this toy retailerincluding the retailer's flagship store on Fifth Avenue in New York City, as well as its e-commerce site, FAO.com. The company closed the FAO Schwarz flagship store in New York on July 15, 2015, citing rising rental costs, but continued to carry FAO Schwarz-branded toys in its Toys "R" Us and Babies "R" Us stores until 2017.

MGT: Missed Technology Toys trend, Electronics as "too high end", Learning Toys

  1. The chain lagged further behind in technology

  2. It missed the mark on some major investments, such as licensed Star Wars toys and Lego movies - lots of investments stimulated as partners forced heavy inventory commitments without sharing the burden of failure.

  3. PE Bean Counter mentaility - LOSSES BLEEDING. The company has not had an annual profit since 2013. It reported a net loss of US$164 million in the quarter ending April 29, 2017. It lost US$126 million in the same period in the prior year.

Ecommerce too late - Missed due to Amazon Deal just sucked its blood!

  • 1998 Toys "R" Us began selling toys online with the launch of Toysrus.com in 1998. Following a disastrous Christmas 1999 trading period during which the company failed to deliver gifts on time.

  • TEN YEAR DEAL WITH VAMPIRE! Management had a very defective online sales strategy. It was simply giving away money to Amazon in a deal that just sucked its blood and kept it away from any benefit or defense against online sales. Toys "R" Us entered into a ten-year contract with online retailer Amazon in 2000 to be the exclusive supplier of toys on the website.

  • Amazon eventually reneged on the terms of the contract by allowing third-party retailers to use its marketplace to sell toys, citing Toys "R" Us's failure to carry a sufficiently large range of goods, including the most popular lines.
  • In 2006, Toys "R" Us successfully sued Amazon; the company was awarded $51 million in damages in 2009, just over half of the $93 million initially claimed. Finally it got out of the cursed Bezos contract!

  • eToys.com acq Feb 2009 for $5m. Looking to expand its web portfolio, in February 2009, the company acquired online toy seller eToys.com from Parent Co., which filed for bankruptcy protection in December 2008. Financial terms were not disclosed. Around the same time, it was reported that Toys "R" Us, Inc. bought Toys.com for an estimated $5.1 million. Today, the company operates Toys.com to list unadvertised and exclusive deals available on its portfolio of e-commerce sites.

  • 2010, Toys "R" Us, Inc. reported that its Internet sales grew 29.9% year-over-year to $782 million from $602 million, and in April 2011, the company announced plans to open a dedicated e-commerce fulfillment center in McCarran, Nevada.

  • 2011 $1b in sales. The company later reported online sales of $1 billion for 2011 and $1.1 billion for 2012.[166] It placed at No. 29 in the Internet Retailer Top 500 Guide for 2012. Toysrus.com was one of the most visited sites in the specialty toy and baby products retail category with an assortment of toys. In addition, Babiesrus.com offered a wide selection of baby products and supplies and access to the company's baby registry.

  • 2018 The chain's online store shut down on March 29, 2018 redirecting visitors to information on the liquidation and closures.

  • The surviving international stores continue to sell merchandise online.

2018 Bankruptcy

2017 - officially closing its doors in nearly 200 locations - this cost cutting was the sign of it dying.

The absence of the retailer during the 2018 holiday season represented a US$4 billion chunk of toy sales from which other retailers probably benefited.

Party supply retailer Party City capitalized on the closures by establishing temporary pop-up stores under the branding Toy City—some of which filling vacancies left by Toys "R" Us locations.

The company filed for Chapter 11 bankruptcy protection on September 18, 2017, and its British operations entered administration in February 2018.

In March 2018, the company announced that it would close all of its U.S. and British stores.

Toys R Us declared bankruptcy after struggling with a heavy load of debt caused by a buyout in 2005, including competition from Amazon, Target and Walmart. The company owed more than $5 billion.

Even as it went bankrupt, the original Toys R Us accounted for about a fifth of toy sales in the U.S.

The British locations closed in April and the U.S. locations in June. The Australian wing of Toys "R" Us entered voluntary administration on May 22 and closed all of its stores on August 5, 2018. Operations in other international markets such as Asia and Africa were less affected, but chains in Canada, parts of Europe and Asia were eventually sold to third-parties.

Mar 2018 Toys R Us, Game Over: Chain Closing All U.S. Stores : The Two-Way

Multiple years of declining foot traffic. * ToysRUs Examle - Dec 2013, eight days before Christmas, Toys "R" Us announced US stores would stay open for 87 hours straight after snow and rain caused a nearly 9 percent year-over-year decline in U.S. store foot traffic, and they needed to catchup in sales. - In particular 2017 holiday season's disappointing holiday sales was nail in coffin.

  1. Not Vital to Consumers or Missed! Without Toys R Us, 90% of the shopping that would normally happen at the toy chain simply would shift to other retailers.

Smaller Toymakers hurt most

Toymakers not big enough to negotiate deals with the giant retailers, but which have relied on being discovered by Toys R Us shoppers in the past, will likely suffer the most.

Not seen as a destination for quality and variety of Bikes and Sports goods

  • With good enough bikes in Target, and (not so good selections but cheap) bikes at Walmart, ToysRUs lost its niche.

"In wintertime I look forward to going to Toys R Us, because this is the only place where kids can actually see toys and play — more than Kmart, more than Walmart and all those places. This is just meant for kids."

Too Big stores for a more focussed Role of Learning and Speciality Toys as Frequent Buyers

Mary Henely brought her son Thomas to buy some Lego toys. "I recognize that it's a sign of the times with online shopping, perhaps. But I think it's disappointing," said Henely, who said she shops at Toys R Us about once a month.

2o19 Tru Kids - Experiential "Touch and Play Stores" in Cheap mall location for Affluent

Now the company is switching its focus to smaller stores that will feature interactive toy demonstrations, spaces for special events like birthday parties, new activities every day and open play areas. Starting with 2 stores, it plans to open 10 additional stores in "prime, high-traffic retail markets" within the U.S. throughout 2020. Future store locations are planned to be about 10,000 square feet bit bigger.

Tru Kids Brand, the parent of Toys R Us, entered a joint venture with the startup b8ta, which owns a chain of "experiential" stores. The retailer has relaunched its website, touting an experience "centered around product discovery and engagement." - Vibhu Norby, CEO of b8ta

  1. SMALLER, Lower Cost. The stores will be nearly 6,500 square feet — roughly one third the size of its big-box stores.

  2. Try before you Buy. Paid by Toy Makers to Gather Data on Newer Tech/High Cost Toys. Consumers will have the opportunity to play with toys displayed out of the box before potentially purchasing them. The company believes that this immersive experience, for example, will help it track patterns and measure how in-store retail experiences effect online sales. Although preferences and consumer shopping habits have changed over the years, "what hasn't changed is that kids want to touch everything and simply "play," said Phillip Raub, president of b8ta and interim co-CEO of the Toys R Us joint venture.

July 2019 Toys R Us Relaunches Its Stores In Time For The 2019 Holiday Season

The lenders who ended owning it, partnered with Kroger to add "Geoffrey's Toy Box" (named after the chain's mascot) pop-up departments to selected locations in order to give Toys "R" Us a presence during the holiday shopping season.


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