Geoffrey the Giraffe will soon ride off into the sunset.
After a half-century run and millions of children served, Toys ‘R’ Us will soon be Toys ‘R’ No More Us.
The news wasn’t a shock, particularly since the retailer first filed for bankruptcy in September 2017 under the weight of $4.9 billion in debt, a vestige from its $6.6 billion acquisition by Kohlberg Kravis Roberts, Bain Capital Partners and real estate investment trust Vornado Realty Trust a little over a decade ago.
But as bankruptcy filings go, it was pretty upbeat.
Toys had initially hoped the protections of a bankruptcy filing might give them the freedom they needed to update, streamline and become more competitive. It even managed to garner a $3.1 billion loan at the time to keep stores open during the holidays – normally its busiest season.
But the holidays came and went, and America’s most iconic toy retailer ended up with coal in its stockings – consumers generally don’t like to shop at a retailer they perceive to be dying. That set the stage for a January 2018 announcement that another 200 stores were destined for the chopping block – and more rumors that the bankruptcy would soon become a liquidation.
Up until about a year ago, March of 2017, Toys put a very bullish face on its prospects to both its staff and its customers, telling the former that things were A-OK while placing orders with vendors, as usual, so consumers had things to buy in their stores. As it turned out, they couldn’t quite pay for those orders.
At that point, the writing on the wall was a bit hard to miss – and on March 15, the store whose mascot was Geoffrey the Giraffe sealed their fate with a liquidation filing in bankruptcy court. As a result, it will close all of its U.S. stores and sell off all of its inventory.
According to the filing, the company’s creditors “have determined that the best way to maximize their recoveries is to liquidate the existing inventory in all ... 735 remaining U.S. stores and begin an orderly wind-down of the U.S. operations.”
And while the death of such a massive retailer would on its own qualify Toys ‘R’ Us for inclusion in this week’s sizzle fizzle list, what made it this week’s “winner” isn’t the closure itself.
It is the collateral damage to the toy industry that will come in its wake.
Because saying Toys ‘R’ Us is important to the U.S. toy industry doesn’t even begin to cover it. According to Jefferies analyst Stephanie Wissink, it accounted for 15 to 20 percent of U.S. toy sales last year.
Toy sales will carry on, of course – at Amazon and Walmart, the very brands most chiefly named in Toys’ demise – but those big box stores have limited shelf space, and getting onto Amazon’s front page listings isn’t easy. That means toy retailers will be fighting hard for far fewer places to show their wares.
And according to Wissink, that could mean the entire industry could contract by as much as 15 percent. Toy sales, she predicted, won’t move to any other retailer, but will simply disappear into the ether.
That comes at a bad time for the toy industry, generally, which isn’t facing competition from other toys, but from other ways that kids now entertain themselves: iPads and apps.
Already the toy makers have been their shares take a tumble. On the heels of Toy’s bankruptcy filing, Mattel has seen its share price fall 8 percent, and rumors are circulating about their own bankruptcy filing. Hasbro, which was discussed as a potential buyer for Mattel, has also seen its share price dip 4.6 percent on the news.
And toy makers are feeling the fear.
“There is no toy business without Toys ‘R’ Us,” noted Isaac Larian, chief executive of MGA Entertainment, the company behind toy brands such as L.O.L. Surprise!, Little Tikes and Bratz. Larian said that he sold his first product to the chain in 1979.
He’s also not letting Toys ‘R’ Us go without a fight. The ink was barely dry on the Toys liquidation filing when a consortium of toy makers, led by Larian, put in an official bid to buy the company’s Canadian arm, which includes 82 stores.
They have also noted that the group is investigating buying as many as 400 U.S. stores, which would continue to operate under the Toys ‘R’ Us name.
“It’s a big deal and I’m going to try to salvage as much of it as possible,” he said.
But can it be salvaged?
Among reason Toys ‘R’ Us fell to bankruptcy is that people are buying fewer toys these days – Hasbro and Mattel were both reporting troubles before the bankruptcy was even filed. Freed from the crushing debt load that held down Toys ‘R’ Us before, the firm might be able to begin a second life under new management with a much smaller, more efficient footprint – but that is not a foregone conclusion.
Plus, that buy-out may never happen.
Which means, as of right now, there may never be another Toys ‘R’ Us kid – and the size and scope of toys sales in the U.S. market seem to be headed for a big contraction, which is probably going to be very bad news for some brands. Which also means it is both the fizzle of the week, and likely the staging ground for more fizzles yet to come.
And incredibly ironic for a brand who itself was a disruptor in its day. Toys ‘R’ Us and its massive inventory of toys, sold under one roof at great prices, was also the demise of the independent toy store – most famously, the iconic FAO Schwartz brand. Even disruptors get disrupted.
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