Toys 'R' Us files for bankruptcy

Major US toy firm brought down by debt and online competition

A Toys R Us store in Framingham, Massachusetts. The company has filed for bankruptcy. Adam Hunger/Reuters

Toys “R” Us hasfiled for bankruptcy as the retailer, loaded with debt in a buyout more than a decade ago, failed to keep consumers from abandoning its stores for the lower prices and convenience of online shopping.

The company filed Chapter 11 documents late Monday in US Bankruptcy Court in Richmond, Virginia. The chain secured US$3 billion in debtor-in-possession financing to stay open while it restructures, according to a company statement.

The bankruptcy filing is the latest blow to a bricks-and-mortar retail industry reeling from store closures, sluggish mall traffic and the threat of Amazon.com. More than a dozen major retailers have filed for creditor protection this year, including Payless, Gymboree and Perfumania, all of which are using the Chapter 11 process to close underperforming stores and expand online operations.

Much of the toy merchant’s debt is the legacy of a $7.5bn leveraged buyout in 2005 in which Bain Capital, KKR & Co and Vornado Realty Trust loaded the company with debt to take it private. Since then, the New Jersey-based chain has struggled to dig itself out.

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The chief executive David Brandon took over Toys “R” Us in 2015 and sought to make shopping there a more enjoyable experience. Last year, he set out a vision of kids “dragging their parents to our stores because they want to see what’s going on.”

The retailer introduced the “Hot Toy Finder,” which tells customers exactly where in their local store to find the items featured on its “Holiday Hot Toy List”. The chain, which has provided the annual list of the 50 hottest toys for 20 years, also offered price matching and free layaway.

While Mr Brandon made some progress reducing liabilities, he ultimately was unable to resuscitate the closely held chain’s fortunes. The company reported a net loss of $164 million in the quarter ended April 29, compared with $126m for the same period in the prior year. It hasn’t shown an annual profit since 2013.

The company sells toys and baby merchandise in more than 1,500 Toys “R” Us and Babies “R” Us locations worldwide and through websites including Toysrus.com and Babiesrus.com.

Charles Lazarus opened Children’s Bargain Town, a baby-furniture store, in Washington in 1948, according to the Toys “R” Us website. He added toys two years later and opened the first Toys “R” Us, modelled after self-service supermarkets, in 1957. Mr Lazarus stepped down as chairman and chief executive in 1994. Two years later, the first babies “R” Us opened.