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Toys ‘R’ Us files for bankruptcy as it struggles with debt

Rhode Island State News.Net - Wednesday 20th September, 2017

CALIFORNIA, U.S. - The 60-year-old iconic toy store chain, Toys ‘R’ Us filed for bankruptcy on Monday night, after struggling with debt.

The company that has tried to remain relevant in an era of online shopping boom, had been struggling to pay down billions of dollars in debt.

The company said in its statement that its 1,600 Toys ‘R’ Us and Babies ‘R’ Us locations would operate “as usual,” and that it would work with its investors to address roughly $5 billion in debt.

Dave Brandon, chairman and chief executive of Toys “R” Us, said in a statement, “Today marks the dawn of a new era at Toys ‘R’ Us where we expect that the financial constraints that have held us back will be addressed in a lasting and effective way. We are confident these are the right steps to ensure that the iconic Toys ‘R’ Us and Babies ‘R’ Us brands live on for many generations.”

For decades, the country’s preeminent toy retailer, the company had a towering flagship in New York’s Times Square and a ubiquitous icon, Geoffrey the Giraffe. 

Then, in 2006, it acquired its competitor FAO Schwarz, but eventually closed its iconic New York store on Fifth Avenue, citing high costs.

The bankruptcy filing by the company comes on the heels of the all-important holiday shopping season, which can account for half of retailers’ annual sales. 

According to Neil Saunders, managing director of GlobalData Retail, the Toys ‘R’ Us bankruptcy “brings to a close a turbulent chapter in the iconic company’s history. Even if the debt issues are solved, Toys ‘R’ Us still faces massive structural challenges against which it must battle. The jury is out as to whether it can adapt enough to survive.”

Toys ‘R’ Us is currently owned by three companies, including private equity firms Kohlberg Kravis Roberts and Bain Capital, and real estate firm Vornado Realty Trust — that purchased it for about $6 billion in 2005.

The company has faced stiff competition from online retailers and big-box chains like Walmart and Target, which often offer the same toys for less money.

Further, experts pointed out that the move also comes at a time when toys have fallen in priority amongst many children and teenagers, who would prefer smartphones and tablets — or apps and games for those devices — than traditional playthings. 

According to GlobalData Retail, two in three young teenagers now have their own tablet or smartphone, and the majority of them said spending on those devices has become an important consideration.

Saunders explained, “For many children, electronics have become a replacement or a substitute for traditional toys. With even the most basic of products having a high price tag, there is often little left over – either from the child’s budget or the gifting budget of parents and family — to spend on other toys.”

The filing is also the latest in a string of high-profile bankruptcies this year.

According to figures, so far this year, more than 300 retailers have filed for bankruptcy, including RadioShack, Gymboree and the Limited. 

Meanwhile, others like Macy’s, Sears and Bebe have closed hundreds of stores.

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