Toys R Us Case Study

Introduction

The toy empire that Charles P. Lazarus founded in April 1948 filed for Chapter 11 bankruptcy protection in the U.S. on September 18, 2017. The Toys R Us collapse is a story of how the loyalty of both the customers and toymakers changed over time and ultimately led to dusty floors and empty shelves at Toys R Us stores. Some of the key reasons leading to bankruptcy are E-commerce, Price wars, Debts, Walmart, Target and change in Consumer Behaviour. During the heydays in 1980s and 1990s, it had huge following across the world and children used to call themselves a "Toys R Us kid." With the arrival of dot com bubble and discount chains, Toys R Us signed up an extensive partnership with Amazon in 2000 which later led to legal wrangling and stock prices of Toys R Us tumbled a lot.

The day of reckoning was delayed when a group of private investors Bain Capital Partners, Kohlberg Kravis Roberts and Vornado Realty Trust together paid $6.6 billion for the leveraged buyout of the company on March 17, 2005 and Toys "R" Us became a privately owned entity after the buyout. The investors saw value in the large number of offline stores and opportunity to enter the newly emerging Asian market. The debt became a trouble in future years as the company had to annually divert its cash flow to pay $400 million to service its more than $6.6 billion in debt. The shifting audience base towards video game and tablets led the toy industry to decline every year at a rate of 3.1 percent, according to data service IBIS World.

The company brought both Babies R Us and Toys R Us together under one roof post 2005 to give a holistic experience to the customers and launched “Buy Online, pick up in Store” in 2010 to increase customer sales but all the above measures could not change the fortune of firm. The company has not had an annual profit since 2013. It reported a net loss of US$164 million in the quarter ended April 29, 2017. It lost US$126 million in the same period in the prior year. In January 2018, the company announced it would liquidate and close up to 182 of its stores in the U.S. as part of its restructuring and on March 14, 2018, it was announced that all UK stores were expected to close within six weeks. Australia division was also shut down by June 2018 and Canadian division was sold to Fairfax Financial Holdings Ltd. for approximately $234 million.

The presence of Toys R Us, International in Asia under the umbrella of Toys "R" Us Asia operates as a separate legal entity from the parent company and are unaffected by events at the parent company. Toys "R" Us Asia experienced a turnover of US$1.85 billion in 2015 while Japanese arm would see US$1.3 billion in net sales in 2017, despite recently declining yearly profits. Euromonitor forecasts toy sales in Asia Pacific will grow 6.3 percent annually by revenue over the next three years, almost five times faster than in North America.