The oldest and the most well known American Toys 'R' Us retailer filed for bankruptcy. This decision should not scare its customers, since it is a way to restructure and make the company viable over the long term, as its debt of $5 billion and the struggle to compete against such online giants as Amazon (NASDAQ: AMZN) and Walmart (NYSE: WMT), were the company’s most immediate problem.
A JPMorgan-led bank syndicate and some of the company's existing lenders, have committed more than $3 billion in new financing to turn the company around.
Good news is that most of the New Jersey-based company’s stores around the world remained profitable, and would continue to operate normally through the holiday period, which is when they do most of their business.
"Today marks the dawn of a new era at Toys R Us where we expect that the financial constraints that have held us back will be addressed in a lasting and effective way. Together with our investors, our objective is to work with our debt holders and other creditors to restructure the $5bn of long-term debt on our balance sheet, which will provide us with greater financial flexibility to invest in our business, continue to improve the customer experience in our physical stores and online, and strengthen our competitive position in an increasingly challenging and rapidly changing retail marketplace worldwide,"
said Dave Brandon, the Chairman and chief executive of Toys ‘R’ Us.
Founder of another UK toy shop chain The Entertainer, Gary Grant, said people's buying habits are changing.
"We're seeing it even in the supermarkets, where the big sheds aren't being visited as frequently as more convenient in-town locations,"
the BBC reports. The company says the new financing will improve the company's financial health and support its operations during the court-supervised bankruptcy process.
"Our objective is to work with our debt holders and other creditors to restructure the $5bn of long-term debt on our balance sheet, which will provide us with greater financial flexibility to invest in our business,"
said chief executive Dave Brandon. Analysts say the company’s large network of shops are an expensive burden at a time when online giants Amazon and Walmart are discounting toys to steal their shoppers.
The toy group said that as part of its proceedings it had sought approval to continue paying staff wages and benefits, honour customer programmes, and pay suppliers as usual.
Although Toys ‘R’ Us continue their global operations, bankruptcy may have worldwide implications, especially for Chinese toy manufacturers. Some 38 percent of the company’s revenue came from overseas markets in the latest fiscal year.
“It’s a loss for the long-term benefit of the entire industry,”
said Lun Leung, chairman of Hong Kong-based Lung Cheong Group, a toy supplier for Hasbro Inc. He said Toys “R” Us accounted for less than 5 percent of the group’s sales, Bloomberg reports.