Retailers rarely survive bankruptcy, second filings are common, and Toys ‘R’ Us has not solved what is killing it.
Bankruptcy indicators first started swirling publicly around Toys ‘R’ Us on September 6. Unlike other retailers that have been dogged by bankruptcy rumors for years, such as Sears Holdings, Toys ‘R’ Us threw in the towel only 12 days later, when its suppliers, fearing steep losses, reacted just as the company was trying to build its inventory before the crucial holiday sales period.
It wasn’t bondholders or banks that pulled the ripcord, but trade creditors. The US and Canadian entities filed for bankruptcy protection in order to be able to restructure their debts and stock up for the holidays with a proposed $3.1 billion in debtor-in-possession (DIP) financing.
TRU’s overall sales and same-store sales have been declining, even as the toy industry has seen growing sales for five years in a row, hitting $20.4 billion in 2016, up from $16 billion in 2012. It’s respectable growth of around 5% a year. But TRU is getting clobbered by its competitors, including Walmart and Target, and particularly by the relentless shift to online shopping.
This post was published at Wolf Street on Sep 25, 2017.