Toys’R’Us Files for Chapter 11 Bankruptcy Protection

Toys’R’Us Files for Chapter 11 Bankruptcy Protection

It turns out the backwards R wasn’t enough to throw the debt collectors off their trail.

Coming as a surprise to no one that’s shopped at one of their stores in the last decade, Toys’R’Us has filed for Chapter 11 Bankruptcy protection. Unlike filing for Chapter 7, this does not mean that they’re liquidating assets and selling off inventory. In this case, they’re simply restructuring to better handle their massive debt, in this case, to the tune of ~$5.3 billion.

In 2005, Bain Capital Partners LLC, Kohlberg Kravis Roberts and Vornado Realty Trust invested $1.3 billion into the company, towards a $6.6 billion leveraged buyout. A leveraged buyout means they combined the $1.3 billion investment with the $5.3 billion in debt to lower the cost of the acquisition. Toys’R’Us was expected to cover that $5.3 billion with their operating revenue.

To the shock of no one, marking up your products over normal MSRP, in an era where Amazon is king didn’t lead to much in the way of profits; that’s where the Chapter 11 filing comes in.

Chapter 11 allows the company to restructure to better handle this debt. Supposedly already obtaining another $3 billion in investments to remain operational during this period.

Gregory ponders his future, fearing relegation to the fruit stripe gum industry

Normally, I’d feel bad for a company squashed by a big name brand coming in and undercutting them. That’s what Wal-Mart does to local mom and pop shops, after all. But in this case, it’s Toys’R’Us fault. They tried to hold fast to their marked up prices when Amazon was offering discounts. Maybe they’ll finally take this as a sign to change their strategies, if not already too late.

If Toys R Us goes bankrupt, does that mean Babies R Us will be an orphan?But what’s really mind boggling is that they’re not the only big retail store guilty of this. Barnes and Noble does the same thing. But they take it a step further. Not only does Barnes and Noble charge more than Amazon, they offer discounts on their website that aren’t honored in store. You can’t order and pay for a book from their website, save a few bucks, and then go pick it up in one of their brick & mortar locations to save even more on shipping. They have the perfect opportunity to undercut and beat Amazon at it’s own game and decided not to.

Amazon’s already starting to make the turn to brick & mortar locations, now that they own Whole Foods and are already testing their own store front, Amazon Go (currently only open as a beta to their own employees) . If these decades old retailers don’t catch on to the changing winds, they’re going to be left behind, and we’ll all be shopping at Amazon Toys and Amazon Books soon.

I can’t help but imagine the mega retailers from Wall-E and Idiocracy. Depressingly, both of those movies are coming more and more true each year.

/Sigh

 

Hesch
All around video game and Star Wars geek. Probably owns more games than you.

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