Toy shop chain Toys R Us, once a retail juggernaut in the toy market, has filed for bankruptcy in the US & Canada.
Bankruptcy protection gives the firm some immediate safeguards. And that’s important: the Christmas season is around the corner. It allows the firm to use remaining cash to pay nervous suppliers.
And bankruptcy allows Toys R Us to negotiate with lenders, ask for discounts or delay repayments. It’s a process called restructuring.
Toys R Us has major debt, acquired from a leveraged buyout by private equity firms KKR and Bain Capital in 2005. This has prevented investment in stores and online.
It has also been crushed by Amazon.
Online sales have doubled in the past 5 years, and this shift away from traditional high street retailers to digital is set to increase.
Retailer Sears closed 100 outlets whilst Macy’s has seen revenue drop. Other US chains have been less successful: bankruptcies are on the rise.
Toys R Us needs to increase investment in its online operation. This will take the fight to Amazon. Perhaps by offering an “Amazon Prime” alternative, which guarantees free next day delivery, Toys R Us could lure loyal Amazon customers.
It also needs to evaluate its store portfolio.
Whilst many of its outlets are profitable, and this bankruptcy doesn’t affect European or Asian operations, it should focus on the visitor experience. This will tear customers away from their smartphones, and entice them to conduct their shopping sprees in store.