Toys R Us Case Analysis
Toys ‘‘R’’ Us filed for bankruptcy protection in 2017 under the Companies' Creditors Arrangement Act. Toy giant, Toys “R” Us, once a market leader, is losing to its competitors: discount stores (such as Walmart), and e-commerce (such as Amazon). Their high prices, lack of technological advances, and keeping up with changing consumer taste and trends, is causing a decrease in sales.
Culture and Demographics
The target consumer of toys is family and friends of children. It seems people are becoming more career-focused and thus having fewer children. With working parents increasing each day they no longer have the time to go toy shopping in-store, instead they are more inclined to purchasing the toys and …show more content…
In 2005, Kohlberg Kravis Roberts (private equity firm) and Vornado Realty (real estate firm) bought Toys “R” Us for $6 billion. The company reorganized after the private buyout and focused on “splitting of its real estate’s assets to make itself more attractive to lenders, which enabled it to sustain to higher debt levels” (Merrick, 2017). Toys “R” Us focused more on expanding their size of store and location which were costly to operate, as opposed to developing a better e-commerce system. Currently, Toys “R” Us is $4.9 billion in debt and paying interest fees; $400 million due in 2017 and $1.7 billion in 2018. Toys “R” Us from both Canadian and American locations applied for bankruptcy protection on September 18, 2017. Toys “R” Us Canada Ltd. applied for credit protection under Companies’ Creditors Arrangement Act (CCAA) and Toys “R” Us Ltd. filed for protection called Chapter 11 Debtors under the United States Bankruptcy Court for the Eastern District of Virginia. The credit protection would allow Toys “R” Us to reorganize and restructure to pay back the creditors. Toys ‘‘R’’ Us Canada legally operates under Toys Canada and undergoes a separate bankruptcy procedure, but loses its main source of financing, which will make it difficult for them to repay the outstanding loan. “Toys “R” Us Canada has now secured interim debtor-in-possession financing from a new group of lenders led by JPMorgan Chase Bank, including a US$200 million term loan and US$300 million revolving credit facility” (Ligaya, 2017). Since applying for bankruptcy, Toys “R” Us secured to get loan operating funds in order to run their business during the holiday season, which counts for 40% of yearly revenue. It also plans on expanding their e-commerce business and develops new marketing