How Toys 'R' Us Went Bankrupt | WSJ

If you were a kid in the 80s or 90s you probably heard this song, it's the Toys R Us jingle, it's catchy, but the lyrics also describe the company's business plan. Toys R Us was founded with a simple idea: create a toy store that looked like it had all the

toys

in the world and sold them at competitive prices. That idea worked until 2017. Toys R Us was one of the top retailers in the United States until it suddenly wasn't. Toys R Us filed for

bankrupt

cy in 2017 after years. Toys R Us had billions of dollars in debt that former employees and analysts say took the company's focus away from selling

toys

and toward simply trying to stay alive, but to some of its creditors, Toys R Us was worth more dead than alive, prompting a liquidation that closed more than 700 stores and laid off about 33,000 employees, and some of the creditors who closed it are the ones trying to recover it. story of how Toys-r-us

went

bankrupt

Toys-r-us began life in 1948 as a baby furniture store under a different name after its founder Charles Lazarus returned from serving in World War II and acquired the toy business.

By pure chance, someone came one day and said: How about a toy for my baby? I looked at some woody meat. So the first toys we sold were baby toys. All Baby Toys In 1957, he focused entirely on toys and changed the store's name to Toys R Us. Charles Lazarus wanted to sell. Toys like supermarkets sold groceries a simple store where customers could find everything they needed year-round their Toys R Us stores had about 45,000 square feet filled from floor to ceiling with about 18,000 toys Lazarus bought toys in bulk and made deals directly with manufacturers Toys R Us was as much a toy warehouse as it was a toy store.

You really think that the stores were particularly beautiful, they were very functional, the magic was in this selection, just the great profusion of toys and the amazement that there were so many toys in the world. the toys appealed to kids and the prices appealed to parents the more attractive the product was, the lower the price Transformers GI Joe whatever was the most popular item lowest price Toys R Us became one of the top killers category by dominating the toy retail market in the late '80s. Of every five dollars spent on toys was at Toys R Us Toys R Us suddenly became this 800 pound gorilla or maybe it was an eight thousand pound gorilla .

Are we leaving many people out of work? The answer is yes, we did and the customer recognized that we had a superior assortment and sold it at a lower price and they came to us in 1988. I walked into Toys R Us to buy some diapers and I was a new mom. I applied for a job and they interviewed me on the spot and they hired me I started kissing Hsieh who was just lurking in the cashier's office and then I was an administrative assistant I did all this stuff Lazarus retired at the top of the toy world in 1994, but the company was facing a major threat from discount retailers like Walmart.

Toy commercials helped children decide what toys they wanted before entering the store, and Walmart was willing to sell some of these toys at a loss to attract parents. We think about it on behalf of the clients. There are discussions about not matching the price and then the people. I shouted: I'll go to so and so, it's cheaper there anyway and they shouted at us that it wasn't our fault. Toys R Us attempted to trim its toy selection to remain competitive, but stock prices fell sharply in the '90s. In 1998, Walmart surpassed Toys R Us as the number one toy retailer.

Management became disengaged from the product. magic when the magic disappeared, the people left. Toys R Us needed to adapt, so in 2000 it turned to Amazon to sell its toys online, but the deal quickly soured after Amazon allowed other toy retailers access to its web store. Toys R Us sued and eventually abandoned the platform in 2006, leaving it to relaunch its e-commerce business on its own. The category killer was being killed in its own category to the point where Toys R Us was looking for an exit from the toy business, the company wanted to sell its toy stores and focus on its growing Babies R Us brand.

Instead, in 2005, the company was purchased by a real estate investment trust in two private equity firms for $6.6 billion. The sale was leveraged, meaning it was largely financed by debt. I honestly didn't know what a private equity firm was or what they did to the employees with this spin, it was a good thing that everything changed after the leveraged buyouts. were popular in the early 2000s private equity firms bought public companies with cheap and available debt, often using the company's assets as collateral at first the company looked like it could turn around under new leadership the stores consolidated and made smart bets on popular toys like In 2009, Zhu Zhu Pets came up with new retail concepts and made plans to go public again in 2010, but none of them really made it past the concept stage;

There was simply no money to make the necessary improvements in the stores. Toys R Us was paying $400 million annually to pay off its debt, the company also depended on holiday sales to make a profit. Toys R Us stayed afloat by applying what it called financial band-aids. , this involved refinancing multiple loans that were backed by various parts of the company Toys R Us couldn't clean up their stores or keep up with their competitors, revenue declined between 2012 and 2017, nothing was going to happen to cover that dad, They were just kicking the can down the road, and eventually the road came to an end and they fell off a cliff in the summer of 2017, with major debt payments looming.

Toys R Us tried to quietly refinance its loans, but when toy benders found out, they demanded cash up front for upcoming holiday deliveries, the CEO at the time. David Brandon said the timing of all this couldn't have been worse: On September 19, 2017, the company filed for Chapter 11 bankruptcy. I was at work that day. Dave Brandon then did this conference call. I just want to assure everyone that they are okay. sure, all their jobs are saved, we're just restructuring on our own. David Brandon said he doesn't remember the details of the call, but said he wouldn't have assured employees about jobs or store closings that we thought would go into a Chapter 11 situation. , but holiday profits took a big hit in 2017 due to a perfect storm of problems that had been exacerbated by bankruptcy In February 2018, Toys-r-us announced it would close hundreds of stores to keep us afloat the manager of my store was the opening manager and she said it's us.

I told him which are our stores that are closing. Either they would offer us a local position at one of the other local stores or we could accept the usual 29 year severance package. In at least I should get at least 14 14 and a half weeks of severance, that's three and a half months, so I thought, I'll be fine, but a group of creditors listed in the bankruptcy filings as the B of the lenders had a significant A part of Toys R Us is dead, giving them significant influence in deciding the future of the company. This group led by hedge funds Solace Alternative Asset Management owned about $1 billion of the company's debt that was secured with Toys R Us as intellectual property, such as the logo and Jeffrey the Giraffe Solace, had risen. your share of the B for the debt during the course of the bankruptcy.

The B for lenders held sway for several months. They had waived financial requirements to keep the business in business during bankruptcy, but Toys R Us was running out of cash and when the B of lenders said they would extend the waiver for a week only if Toys R Us stopped paying its owners at some of their suppliers, bankruptcy collapsed with their backs against the wall, toy arrests decided to liquidate on March 15, 2018, the consequences were immediate I stay in bed at night thinking about that childhood story , I'm not facing closing everything, it's just that this may be our last trip here, why is it us, thanks for the memories, in a cruel twist of fate, Charles Lazarus died a week later.

Toys RS had owed toy sellers almost $350 million when it filed for bankruptcy and had continued to order products from them through the Christmas season. All U.S. store employees were informed they would be laid off and would not receive any severance pay. pay this is how David Brandon announced the liquidation at Toys R Us headquarters the last few years have been difficult, true, but I can say with great certainty that the last six months have been pure account, there were 33,000 people who lost their jobs. I was risking my retirement, so this literally changed my life. I am almost 60 years old.

Who will want to hire me? I am almost 60 years old and I will not have health insurance. Former employees teamed up with advocacy group United Out of Respect to push their former private equity owners to pay severance pay organized protests and lobbied members of Congress former owners Bain Capital and KKR eventually established a $20 million severance fund for the laid-off employees and everyone received some money, it was by no means what we were owed, but it was something that was better than nothing soulless and others before creditors acquired the Toys-r-brand and intellectual property us, a Soulless spokesperson said that its involvement with Toys R Us had been misrepresented and that it was a constructive force in the process that led to The Real Children Will Finally Rise.

True Kids Brands launched in 2019 as the new parent company of Toys R Us. The new company opened to generate pop-up experiences and plans to open new concept stores, all under the Toys R Us name. It also partnered with Target to relaunch its e-commerce business. 11 of the 14 members of True Kids Brands' leadership team were employees of Toys R Us at the time of the liquidation, according to court documents and their LinkedIn profiles. A spokesperson for True Kids said the company hired former Toys R. We employees are staffed for their experiences and have made efforts to hire others as well, right after all of this we had a big toy event in Dallas and the new owners of the brand had Jeffrey the giraffe there, their mascot greeted us when we all walked in, stop making fun of us in a way that we didn't cost you all that money we didn't cause you all that we're here we are I'm Jeffrey the giraffe at that moment I thought to myself I don't know whether to hug him or punch him in the face I don't think I would want to work for them again I'd rather fight and work two or three part time jobs like I'm doing than work for them you treated me badly once I won't go back truth The kid still believes the Toys-r-Us brand has value, but it remains to be seen if Toys R Us still has enough magic to create a whole new generation of Toys R Us for kids.