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Toys R Us, the world’s largest toy store chain, has filed for bankruptcy protection in the US and Canada. The company, which employs 64,000 people worldwide, has run up £3.7bn of debts, as it struggles to compete with the “unrelenting competition from e-commerce and big box retailers.”
Adapting to the transformed retail environment
Toys R Us’ story mirrors that of the wider retail environment. Bricks and mortar retail is struggling to keep apace, with growing levels of debt and the competition from e-commerce. The group has been particularly affected by online competition, which offers greater choice, convenience and is often better priced. Both Amazon and Walmart have heavily discounted toys in a bid to claim Toys R Us customers. What’s more, its large network of stores has been an expensive burden.
Investor pressure
The group has confirmed that once the bankruptcy process is complete, it will no longer be owned by Bain Capital, KKR & Co and Vornado Reality Trust. In fact, investor pressure has been cited as one of the key causes of the store’s collapse, with reports blaming its private equity ownership; Toys R Us spent more than $250m a year servicing $5bn in long term debt. A public sale enabling creditors to convert their debt into equity has been mooted.
A turnaround strategy
According to chief executive, David Brandon, Toys R Us’ turnaround strategy marks a new chapter in the store’s 60 year history. Investment in both marketing and technology are a focus, with Toys R Us revamping its older, larger suburban stores, pushing to improve experience and customer service. This includes offering children the opportunity to try out toys in store.
At the same time, the group will reduce some of its other stores and close non-profit-making ones, instead opening smaller stores in urban areas. Staff pay rises, reduced delivery times and improved customer service are all within the strategy.
Business as usual
Toys R Us has said that the majority of its 1,600 stores are profitable and its non-US business aren’t affected. This includes the UK, where it employs more than 2,500 people across its 110 stores. The group plans to open more shops in the UK, four before Christmas in High Wycombe, Sunderland, Blackburn and Craigleith, Scotland. It’s also revamping its flagship shops in Bristol and Brent Cross shopping centre.
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