Toys R Us to liquidate all of its US stores

After struggling with debt and online shopping trends that undermined its sales, the former toy store giant is planning to either shut down or sell all of its US operations over the next few months. 

First Look

Toys R Us is headed toward shuttering its United States operations, jeopardizing the jobs of some 30,000 employees while spelling the end for a chain known to generations of children and parents for its sprawling stores and Geoffrey the giraffe mascot.

The closing of the company's 740 US stores over the coming months will finalize the downfall of the chain that succumbed to heavy debt and relentless trends that undercut its business, from online shopping to mobile games.

CEO David Brandon told employees Wednesday the company's plan is to liquidate all of its US stores, according to an audio recording of the meeting obtained by The Associated Press.

Mr. Brandon said Toys R Us will try to bundle its Canadian business, with about 200 stores, and find a buyer. The company's US online store would still be running for the next couple of weeks in case there's a buyer for it.

It's likely to also liquidate its businesses in Australia, France, Poland, Portugal, and Spain, according to the recording. It's already shuttering its business in the United Kingdom. That would leave it with stores in Canada, central Europe and Japan, where it could find buyers for those assets.

Toys R Us had about 60,000 full-time and part-time employees worldwide last year.

Brandon said on the recording that the company would be filing liquidation papers and there would be a bankruptcy court hearing Thursday.

"We worked as hard and as long as we could to turn over every rock," Brandon told employees. He put much of the blame on its woes on the media, saying negative stories about the company's prospects scared customers and vendors.

The Wayne, N.J.-based company declined to comment.

The chain filed for Chapter 11 bankruptcy protection last fall, saddled with $5 billion in debt that hurt its attempts to compete as shoppers moved to Amazon and huge chains like Wal-Mart.

It pledged then to stay open, but Brandon told employees that it had a "devastating" sales performance during the critical holiday season as nervous customers and vendors shied away. That made its lenders more skittish about investing in the company. In January, it announced plans to close about 180 stores over the next couple of months, leaving it with a little more than 700 stores.

The company's troubles have affected toy makers Mattel and Hasbro, which are big suppliers to the chain. But the likely liquidation will have a bigger impact on smaller toy makers, who rely more on the chain for sales. However, many have been trying to diversify in recent months as they worried about the chain's survival.

Toys R Us was also hurt by the shift to mobile devices taking up more play time. But steep sales declines over the holidays and thereafter were the deciding factor, said Jim Silver, who is editor-in-chief of toy review site TTPM.com.

The company didn't do enough to emphasize that it was reorganizing but not going out of business, Mr. Silver said. That misperception led customers to its stores because they didn't think they would be able to return gifts.

Now, the $11 billion in sales still happening at Toys R Us each year will disperse to other retailers like Amazon and discounters, analysts say. Other chains, seeing that Toys R Us was vulnerable, got more aggressive. J.C. Penney opened toy sections last fall in all 875 stores. Target and Wal-Mart have been expanding their toy selections. Even Party City is building up its toy offerings.

"Amazon may pick up the dollars, but won't deliver the experience needed for a toy retailer to survive and thrive in today's market," said Marc Rosenberg, a toy marketing executive.

Toys R Us had dominated the toy store business in the 1980s and early 1990s, when it was one of the first of the "category killers"– a store totally devoted to one thing. Its scale gave it leverage with toy sellers and it disrupted general merchandise stores and mom-and-pop shops. Children sang along with commercials about "the biggest toy store there is."

But the company lost ground to discounters like Target and Wal-Mart, and then to Amazon, as even nostalgic parents sought deals elsewhere. GlobalData Retail estimates that nearly 14 percent of toy sales were made online in 2016, more than double the level five years ago. Toys R Us still has hundreds of stores, and analysts estimate it still sells about 20 percent of the toys bought in the United States.

It wasn't able to compete with a growing Amazon: The toy seller said in bankruptcy filings that Amazon's low prices were hard to match. And it said its Babies R Us chain lost customers to the online retailer's convenient subscription service, which let parents receive diapers and baby formula at their doorstep automatically. Toys R Us blamed its "old technology" for not offering its own subscriptions.

But Toys R U's biggest albatross was its massive debt load since private-equity firms Bain Capital, KKR & Co. and Vornado Realty Trust took it private in a $6.6 billion leveraged buyout in 2005. The plan had been to take the company public again, but weak sales have prevented that from happening. With such debt levels, Toys R Us did not have the financial flexibility to invest in its business. The company closed its flagship store in Manhattan's Times Square, a huge tourist destination that featured its own Ferris wheel, about two years ago.

In filing for bankruptcy protection last fall, Toys R Us pledged to make its stores more interactive. It added demonstrators for the holiday season to show people how toys work, and began opening Play Labs at 42 stores, areas where children can play with different items.

This story was reported by The Associated Press.