Naperville Business Lawyer Discusses Toy Retailer’s Decision to Close

toys, Naperville business law attorney“I don’t wanna grow up, ‘cause if I did, I couldn’t be a Toys ‘R’ Us kid!”

Most of us can remember at least part of the Toys “R” Us jingle that was part of the advertising campaign for decades. Sure enough, however, consumers did grow up, and it seems that they have largely left the once-iconic toy store in the past. This week, the company announced that it will be closing all of its nearly 800 U.S. stores. The move is expected to put more than 31,000 employees out of work.

In my practice as a business law attorney, I have helped many clients develop strategies for recovering from financial struggles. Some are successful while others only serve as a type of life-support system for a business that is essentially dead. Some experts believe that the recent history of Toys “R” Us places it firmly in the latter category.

More Problems Than Online Competition

Over the last few years, Toys “R” Us faced serious challenges from online retailers like Amazon—and even the online divisions of its brick and mortar competitors like Walmart and Target. While the specialty store offered a wider selection of toys than the competition, Toys “R” Us lacked an inviting and helpful atmosphere. “It’s hard to sell toys in a cold, warehouse environment,” said one prominent retail consultant. The size of Toys “R” Us stores and their inventory were undoubtedly impressive, but customers often struggled to find want they needed, and most locations ran on limited staff.

Of course, once the e-commerce boom began, the wider selection mattered less and less to consumers who could order what they wanted from Amazon or Walmart with just a few clicks. For its part, Toys “R” Us was never able to capitalize on the opportunities of the internet, as financial difficulties dating back more than decade prevented the retailer from updating and streamlining its online division.

Private Equity Concerns

Market experts say that Toys “R” Us has had debt problems since the early to mid-2000s. In January of 2005, the company’s debt was classified as junk bond status. Later that same year, a group of private investors completed a leveraged buyout of the company, shifting the ownership from public to private. The buyout left Toys “R” Us with more than $5 billion in debts, and while the debt was secured by the company’s assets, it was never able to dig back out of such a hole.

Toys “R” Us filed for bankruptcy in September of last year, stating that it still had about $5 billion in debt and that it was paying $400 million per year just stay at that level. With so much money being spent on debts, the company had virtually nothing left to spend on updating stores, creating a new e-commerce platform, or paying staff members.

At the time of its bankruptcy filing, Toys “R” Us had just under 1,700 stores in the United States. That number is now down to under 800. In January, plans to close 182 American stores were announced, and the closures began, company executives began to realize it was too little too late.

Call Us for Help

If your business is going through financial difficulties, an experienced Naperville business law attorney can help you explore your available options. Call 630-756-1160 for a confidential consultation with a skilled member of our team today.

 

Sources:

CNN Money

The New York Times

The Week