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Toys ‘R’ Us Could File for Bankruptcy This Week. Here’s Why

By:
Abigail Abrams
4 min read
General view of the Toys 'R' Us store on Dec. 17, 2013 in Los Angeles, California. - Bauer-Griffin—Getty Images
General view of the Toys 'R' Us store on Dec. 17, 2013 in Los Angeles, California. Bauer-Griffin—Getty Images

With multiple reports that Toys ‘R’ Us could file for bankruptcy as soon as this week, many people are wondering what will happen to the toy chain.

The retail giant has been an industry staple for decades, but it has struggled to keep up with online retailers in recent years, and now it may be running out of time. But how did the ultimate toy chain get into this situation?

A combination of industry trends and specific mistakes have hurt Toys ‘R’ US, experts say. The company did not immediately respond to a request for comment, but here are some of the main issues the company has faced.

A lackluster website

The company has admitted it has lagged behind in the world of online retail. For a long time, its website was not as easy-to-use as competitors like Amazon or Walmart, and even after it revamped its online presence this year, the site does not look as clean as more digitally savvy options.

“Some organizations recognize faster than others there are shifts in the ways customers want to be communicated with and the way customers want to purchase products,’’ Toys ‘R’ Us CEO David Brandon told USA Today earlier this year. “It probably took us a while.”

In an environment when many customers shop online, this has hurt the chain. The company’s same store sales fell 1.4% last year, and in the fourth quarter of 2016 when holiday season came around, sales were down 3%, according to the company’s earnings reports.

After reporting their first quarter earnings this year, Brandon said a bad registry tool and the lack of a subscription feature to allow customers to buy recurring shipments of staples like diapers were hindering the company, according to Fox Business Network.

Empty shelves

A major problem Toys ‘R’ Us has encountered in recent years is that they are constantly running out of toys during peaks shopping seasons. They company is proud of the fact that they stock a broad selection of toys, but that has often meant they only kept a few of each item in any given story.

When Brandon joined the company in 2015, he asked engineers to design an algorithm to predict when goods would run low, according to the Wall Street Journal. But that has continued to be a problem. Brandon told Bloomberg last year that he wanted to revitalize his company’s stores and get new products out where shoppers could see them.

Spending on stores

The company has spent a lot of money on its brick-and-mortar stores. It currently has more than 800 stores in the United States and more in other countries all over the world. Other big box retailers have closed locations as they’ve struggled over the last few years, and this could be on the horizon for Toys ‘R’ Us if they do declare bankruptcy.

Debt

Toys ‘R’ Us has been saddled with significant debts since its leveraged buyout in 2005, according to the Journal. The potential bankruptcy is one option as it works to pay down more than $5 billion in debt.

But CNBC has also reported the company has hired lawyers at Kirkland & Ellis to help it restructure its debt. Addressing its major debt issues before the crucial holiday season could be important to give vendors confidence in the future of Toys ‘R’ Us, according to CNBC.

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