BRANDI BUCHMAN–Toys R Us announced Monday that sharp competition, lagging sales and crippling debt left over from a decades-old buyout has pushed it to file for Chapter 11 bankruptcy protection.
Rivals like Amazon as well as brick-and-mortar vendors like Walmart and Target have only ramped up pressure on the toy purveyor over the years, CEO Dave Brandon said in a statementposted on the retailer’s website. It’s made for an “increasingly challenging and rapidly changing retail marketplace,” he said.
Undeterred, Brandon said the decision to restructure nearly $5 billion of long-term debt would give the New Jersey-based business “greater financial flexibility.”
With peak holiday shopping season just weeks away, consumers and employees of Toys R Us needn’t be spooked: the brand won’t close any of its 1,600 stores. This includes the toy company’s brick and mortar offshoot, Babies R Us.
Online sales from toysrus.com and babiesrus.com will also continue to buoy the company.
Employee wages, benefits, honor/reward programs for customers, vendors and suppliers are also not expected to experience any interruptions as the bankruptcy court for the Eastern District of Virginia at Richmond sorts out the toy store’s books.
Operations outside of the U.S. and Canada will not be part of the proceedings.
Brandon said the retailer has already received a $3 billion commitment for financing from a variety of lenders, including JP Morgan. Pending court approval, Brandon said the move is expected to “immediately improve” Toys R Us financial health and will give the company an opportunity to reevaluate and improve its online marketplace.
The bankruptcy filing is poised to relieve the company from debt connected to its 2005 acquisition by Kohlberg Kravis Roberts, Vornado Realty Trust and Bain Capital Partners. The deal was valued at $6.6 billion.
Toys R Us still owes $4.9 billion and the interest payments alone, which come due next year, total $400 million. Another $1.7 billion is due in 2019.
Charles Lazarus, a Washington D.C. native and World War II veteran, launched Toys R Us after returning from war. Lazarus saw an opening in the market for inexpensive cribs and other children’s home furnishings so he opened Children’s Bargain Town in April 1948.
A couple years later, requests for toys at the store spurred bigger ideas and in 1957, Toys R Us opened its doors for the first time. As of 2014, the company was valued at $12.4 billion, Forbes reported.