Closure of Toys 'R' Us US stores puts 33,000 jobs at risk

The company has struggled to service debt from a $6.6 billion leveraged buyout by private equity firms and a real estate investor in 2005.

FILE PHOTO - A man passes by Toys R Us store at Times Square in New York, U.S., March 9, 2018. REUTERS/Eduardo Munoz/File Photo
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Bankrupt Toys ‘R’ Us is preparing to sell or close all 885 stores in its US chain, risking up to 33,000 jobs, after failing to reach a deal to restructure billions of dollars in debt, a person familiar with the matter said on Wednesday.

With shoppers flocking to online platforms like Amazon and children choosing electronic gadgets over toys, the company has struggled to service debt from a $6.6 billion leveraged buyout by private equity firms KKR & Co and Bain Capital and real estate investor Vornado Realty Trust in 2005.

Toys ‘R’ Us had been closing one-fifth of its US stores as part of efforts to emerge from one of the largest ever bankruptcies by a specialty retailer.

But creditors decided they can get more from liquidating assets of the toy seller, the largest in the United States and one of the best known in the world, rather than finding a way to keep the business alive, the person said, speaking on condition of anonymity to discuss the private negotiations.

A Toys ‘R’ Us spokeswoman declined to comment.

The company is expected to make a filing with the bankruptcy court late on Wednesday, the person said.

The planned closure in coming months is a blow to generations of consumers and hundreds of toy makers that sold products at the chain, including Barbie maker Mattel, board game company Hasbro and other large vendors such as Lego.

In Britain, the remaining 75 Toys ‘R’ Us shops will close within six weeks, joint administrators for the retailer said earlier on Wednesday, after they were unable to find a buyer for all or part of the business, resulting in the loss of about 3,000 jobs.

The Wall Street Journal earlier on Wednesday reported that Toys 'R' Us Chief Executive David Brandon told US staff about the likely closures on a conference call.

Efforts to restructure collapsed this month after lenders decided, absent a clear reorganization plan, they could recover more by closing stores and raising money from merchandise sales, sources with knowledge of the matter said.

“It’s a relentlessly difficult retail environment for mall-based retailers. There just aren’t the same feet coming through the doors,” said Brian Davidoff, a financial restructuring lawyer.

More than 8,000 US retail stores closed in 2017, roughly double the average annual store closures in the previous decade, according to data from the International Council of Shopping Centers.

Toys 'R' Us is also likely to liquidate in France, Spain, Poland and Australia, Mr Brandon said, according to The Wall Street Journal. It quoted Mr Brandon as adding that the retailer also planned to sell operations in Canada, Central Europe and Asia.

Toys ‘R’ Us was already working with liquidators Tiger Capital Group, Great American Group, Hilco Merchant Resources and Gordon Brothers Retail Partners on previously announced store closures, and the four are expected to continue with the additional closings, sources said.

The future of the retailer’s big-box shops, many located in strip centres, was uncertain.

The disappearance of Toys ‘R’ Us in the US and the UK leaves a void for hundreds of toy makers that relied on the chain as a top customer alongside WalMart and Target.

Shares in Mattel, the world’s largest toymaker, and number two US toymaker Hasbro tumbled last week on liquidation reports. Both companies rely on Toys ‘R’ Us for roughly 10 per cent of their revenues, according to their 2016 annual reports.

The liquidation will be more painful for small, independent toy makers that relied on the chain as a major showcase, said Lutz Muller, president of consultancy Klosters Trading.

“A large number will go to the wall,” Mr Muller said.