• 370 days Will The ECB Continue To Hike Rates?
  • 370 days Forbes: Aramco Remains Largest Company In The Middle East
  • 372 days Caltech Scientists Succesfully Beam Back Solar Power From Space
  • 772 days Could Crypto Overtake Traditional Investment?
  • 777 days Americans Still Quitting Jobs At Record Pace
  • 779 days FinTech Startups Tapping VC Money for ‘Immigrant Banking’
  • 782 days Is The Dollar Too Strong?
  • 782 days Big Tech Disappoints Investors on Earnings Calls
  • 783 days Fear And Celebration On Twitter as Musk Takes The Reins
  • 785 days China Is Quietly Trying To Distance Itself From Russia
  • 785 days Tech and Internet Giants’ Earnings In Focus After Netflix’s Stinker
  • 789 days Crypto Investors Won Big In 2021
  • 789 days The ‘Metaverse’ Economy Could be Worth $13 Trillion By 2030
  • 790 days Food Prices Are Skyrocketing As Putin’s War Persists
  • 792 days Pentagon Resignations Illustrate Our ‘Commercial’ Defense Dilemma
  • 793 days US Banks Shrug off Nearly $15 Billion In Russian Write-Offs
  • 796 days Cannabis Stocks in Holding Pattern Despite Positive Momentum
  • 797 days Is Musk A Bastion Of Free Speech Or Will His Absolutist Stance Backfire?
  • 797 days Two ETFs That Could Hedge Against Extreme Market Volatility
  • 799 days Are NFTs About To Take Over Gaming?
Is The Bull Market On Its Last Legs?

Is The Bull Market On Its Last Legs?

This aging bull market may…

How The Ultra-Wealthy Are Using Art To Dodge Taxes

How The Ultra-Wealthy Are Using Art To Dodge Taxes

More freeports open around the…

  1. Home
  2. Markets
  3. Other

What Killed Toys ‘R’ Us?

Toys

In the wake of the biggest bankruptcy of a U.S. retailer since Kmart in 2004, Toys ‘R’ Us is closing down all 800 stores in the U.S. after failing to secure a restructuring deal.

There were no buyers for the iconic store.

Following a $6.6-billion leveraged buyout by private equity firms in 2005, the toy giant struggled to boost sales and service debt. Last fall, it filed for Chapter 11 bankruptcy protection, burdened with $5 billion in debt that kept it from competing with Walmart and Amazon.

The company also is liquidating operations in other countries, and plans to sell its business in Canada, Central Europe and Asia.

Now, with an estimated 30,000 employees soon to be out of work, the real beneficiaries are Amazon and Walmart.

The Toys ‘R’ Us bankruptcy, according to analysts at Jefferies, would see an estimated 40 percent of the Toys ‘R’ Us sales flow go to Amazon, and 30 percent to Walmart.

It may have dominated the toy store business in the 80s and 90s, but discounters like Walmart and Target slowly chipped away at profits and any competitive edge it had to begin with. Then came Amazon, the online sales beast. Online, Toys ‘R’ Us failed to compete.

In 2016, Amazon recorded $2.16 billion in toys sales, compared to online toys sales for Toys ‘R’ Us of only $912 million. 

(Click to enlarge)

Source: Statista

Saddled with so much debt, CEO David Brandon conceded in an SEC filing last fall that the company had lagged behind competitors “on various fronts, including with regard to general upkeep and the condition of our stores”. Related: Why Aren’t Millennials Investing?

Now, major toy makers such as Hasbro and Mattel will have to choose new retailers. Toys ‘R’ Us accounted for some 11 percent of Mattel’s annual sales and some 9 percent of Hasbro’s. Neither toy company is feeling too stable right now, with or without Toys ‘R’ Us, and the rumor mill is ripe with talk of merger.  

But while Target, Walmart and other online sellers will be able to fill in the retail gap for Mattel and Hasbro, smaller toy makers won’t be so lucky. Toys ‘R’ Us reportedly accounted for more than 50 percent of small toy-makers overall business.

It’s not just Toys ‘R’ Us and toy-makers who are in trouble right now. Toys in general are facing extinction.

Even Lego’s major 13-year bull run is over, and there are simply more blocks out there than anyone wants. Mattel’s’ Mega Bloks is doing even worse, and the company reported a surprise loss even during the holiday season.

Toys ‘R’ Us was an American institution, but it’s a title it can only maintain as long as Americans still love toys. This is the digital era, and the top of the average child’s gift list is an electronic gadget that takes them well beyond the physical world of tangible toys.

By Jan Bauer for Safehaven.com

More Top Reads From Safehaven.com:

Back to homepage

Leave a comment

Leave a comment