
Toys ‘R’ Us Plans Bankruptcy Filing Amid Debt Struggle - rayuela
https://www.bloomberg.com/news/articles/2017-09-18/toys-r-us-is-said-to-plan-bankruptcy-filing-as-soon-as-today
======
product50
Though this may have something to do with Amazon (and retail generally
trending online), it does appear that the big culprit here were Bain Capital
(and its partners) who took it private in 2005 via leverage buyout and ladened
Toys r Us balance sheet with untenable debt from thereon. Apparently, they
were paying $500M in interests alone per year vs. reinvesting capital in
growth of their offline stores or online retail.

I personally feel that, similar to bookstores which as seen a resurgence in
neighborhood mom & pop stores, while Amazon will continue to dominate, a lot
of smaller toy retailers (both online and offline) will spring up to take Toys
r Us' space.

~~~
atourgates
Toy stores are a _great_ example of opportunity for brick and mortar. Just
like book stores, they operate in a space where curation, discovery and the
physical experience adds real value.

The town I grew up in has a great independent toy store, and I make it a point
to shop there every time we're in town. Every time I find something unique
that I would have never looked for on Amazon, and often I'm hooked by the
tactile act of playing with something that couldn't be fully replicated
online.

As an interesting aside, this particular store[1] fought for its right to keep
their mural (which was awesome but violated city codes) all the way to the
supreme court[2]. They lost, but you've got to admire the chutzpa of someone
willing to do that.

[1] [http://www.inlandoctopus.com/](http://www.inlandoctopus.com/)

[2] [http://www.seattletimes.com/seattle-news/city-paints-over-
wa...](http://www.seattletimes.com/seattle-news/city-paints-over-walla-walla-
octopus-sign/)

~~~
rb808
>Every time I find something unique that I would have never looked for on
Amazon, and often I'm hooked by the tactile act of playing with something that
couldn't be fully replicated online.

You're absolutely right. The result usually is though that the kid finds a toy
they like then puts in on their Birthday/Christmas wishlist from where the
Santa buys from Amazon. I like to think I never do this, but if the price is
much higher even I have a limit.

I think that manufacturers should sell to physical toy stores at a lower
price, and actively make sure online price is the same or higher than instore.
but I dont how easy this is to police or even if is legal in some countries.

~~~
ringaroundthetx
> I like to think I never do this, but if the price is much higher even I have
> a limit.

Really? You rationalize going to a brick and mortar international franchise
simply because it is physical, instead of going to an online international
franchise?

Thats the biggest stretch of "buy local" that I've ever been exposed to.

~~~
Naritai
OP is talking about a small toy store, but regardless - an international
franchise that has a location in your home town employs people from your home
town, whereas Amazon (for the sake of argument in this case) does not. That's
the core argument of 'buy local'.

~~~
icebraining
Pretty sure the person who delivers my packages doesn't live in another
country.

~~~
Naritai
A tiny fraction of the alternate, yes. Though of course much of the logistics
planning an operations is easily outsourced.

------
dforrestwilson
Take the same building, reduce the space dedicated to toy sales, open up a
series of indoor playgrounds and gymnasiums. Heck maybe carve out a daycare
facility.

Maybe some sort of toy lab for kids to try before they buy.

Refocus the concept on being a real place for kids to grow and I think you'd
see customers coming in the door again.

~~~
devmunchies
A place to try before you buy on amazon.

~~~
CodeTheInternet
I used to go to Borders constantly, like a hangout. As Amazon grew, I found
myself doing exactly this: going to check out the latest releases, flip
through the pages, pull out my phone and check Amazon prices. 99% of the time
it was cheaper there. Add the book to a wishlist or my cart, put the book back
on the shelf and leave empty-handed.

I felt horrible when Borders went under, but I do the same at B&N. If brick-n-
mortar want to compete with Amazon, they need to compete with their prices.
However, they also have a lot of additional overhead that makes it untenable.

This trend of resellers is going to occur until Amazon dominates the market,
or we start buying direct from vendors which doesn't seem likely for many
items.

~~~
joshvm
This is why many bookshops teamed up with coffee shops. Even Blackwell's in
Oxford has Caffé Nero upstairs. Several indie bookshops do it too.

Nowadays I just go to the Oxfam bookshop near me. It's cheaper than Amazon
marketplace (£2.80 shipping). I'm working through the old Hugo/Nebula winners
and pretty much every week there's a new classic sci-fi I haven't read. That
and cookery, you can pick up lovely books that would cost upwards of £20 for
£2.50.

I'm also very wary of buying on Amazon, because it's been flooded with cheap
crap from Aliexpress. The exception are a few brands like Anker which are
reliably OK.

~~~
dabockster
> I'm also very wary of buying on Amazon, because it's been flooded with cheap
> crap from Aliexpress.

Seattle here. Only transplants buy from Amazon. We've known about this problem
here for years.

You'll usually see native Seattlites buy from B&H, Newegg, or the local shops
and use Amazon as a last resort.

------
smaili
It really is unfortunate that stores I grew up with as a kid, ones like KB
Toys, Montgomery Wards, Service Merchandise, Blockbuster, Kmart/Sears, and now
even Toys"R"Us have gone by the wayside for one reason or another.

It both depresses me and blows my mind that future generations may not even be
able to experience Brick and Mortar.

~~~
heurist
Do we really want our kids to enjoy fluorescent-lit warehouses full of cheap
crap that will be thrown away a couple months after it's bought?

~~~
bodz
There's something to be said for getting rid of excessive waste and
unnecessarily large warehouses of "cheap junk", but it's also worth
remembering that toys play a very important part in teaching children
fundamental skills like hand-eye coordination, simple problem solving,
fostering imagination, etc.

It's a game of "what-ifs", but I'm fairly confident in saying I wouldn't be
pursuing the career I am now if I had never had the experiences of walking
down the Lego aisle at the toy store and falling in love with piecing together
toy cities.

~~~
bduerst
Same - except for me it was also _Capsela_ (now called IQ Key), a bunch of
cheap plastic crap that let you engineer modular machines.

I think the medium that kids play with 'toys' has changed with tablet and
phone devices. Now they're solving puzzle apps and building Minecraft cities -
whether or not that's a good or bad thing, I'm not sure, but it doesn't bode
well for toy stores.

~~~
bodz
I think so too, but I wonder about the long term effect that doing everything
in the virtual world will have on abilities in the physical world. It's
extremely anecdotal, but my little brother, who almost exclusively plays
Minecraft, seems to have a fantastic imagination but very poor fine motor
skills. He has trouble doing anything physical that requires not using a
keyboard and mouse.

~~~
soverance
I feel like there's a point far into the future where they might consider the
current technology age as a turning point in our evolution as biological
beings. Consider a future 1000 years from now, after we've spent a thousand
years interacting with the virtual world. Imagine a world where the virtual is
indistinguishable from the physical - where the virtual IS physical, and the
physical IS virtual. Virtual worlds that are infinitely customizable, creating
scenarios for your mind that are infinitely more compelling than what you can
experience in the purely physical realm. Reset your life to any point in time.
Fast forward. Rewind. Play through every conceivable event. Travel to any
destination you can imagine. Meet anyone or any creature. BE any creature.
Live an existence that can be shaped by your very whim; reality could be
whatever you wanted it to be, changes made as quickly as thoughts come and go.
For all intents and purposes, you are the architect of your own reality. God.

Computer chips implanted into the body to regulate vital functions. Nanobot
technology to repair or modify biological cells. Countless methods to sustain
and prolong your biological life.

Eventually the biological dies, but the virtual simulation is not interrupted.
Instead, your consciousness is uploaded to the world's mainframe server, where
your mind is allowed to continue on it's journey of self-discovery within the
virtual world. You and your loved ones can continue to interact virtually,
forever. Where you can continue to explore, to learn, and to experience life
long after your death.

You are virtually immortal.

~~~
nradov
Since we don't understand the nature of consciousness there is zero evidence
to indicate that mind uploading will ever actually be possible.

------
dadrian
The CEO of Toys 'R' Us as of 2015 is Dave Brandon. He was the former CEO of
Dominoes Pizza. After he left Dominoes in 2009 is when they started the "We
used to suck, we don't anymore, please come try us again!" advertising
campaign.

After Dominoes, Dave Brandon was the athletic director at the University of
Michigan. During his time as AD, he managed to alienate the majority of the
fan base, hire a coach who got worse over the course of four years and who
ended with a losing record and who gave up the title of "winningest program"
to Notre Dame, violate FOIA law, repeatedly mishandle PR situations (including
the time where it appeared that a QB with a concussion got put back in the
game), and run up the athletic department debt. He got fired on Halloween
2014, after slightly over four years as AD.

Color me not surprised Toy 'R' Us went under.

~~~
bllguo
Are there non-cynical explanations of how someone with such a terrible track
record gets hired? Maybe a dearth of alternative CEOs? Or is the reality as
bad as it appears?

~~~
narrator
Who's on the board that hired him? Did they have a pre-existing personal
relationship from a frat or something? Getting to the bottom of this would
probably inform a good stock shorting strategy.

~~~
coredog64
I'm now pondering a "these fratboys are deleterious to boards" index fund
thanks to your post.

~~~
ThrustVectoring
Bonus points for using social graph data for boardmembers and the fratboys
they hire to front-run terrible CEO hiring decisions.

------
marsrover
I remember being young and looking forward to every year near Christmas my mom
and Grandma would take me to Toys 'R' Us and pick out my present.

Feels weird to hear they're going bankrupt. Understandable, though. Huge
stores with random assortments of product (non-essential product, unlike
toilet paper et al.) aren't cost effective or convenient in comparison to
something like Amazon.

------
nielsbot
Bain Capital strikes again?

------
javajosh
Of all the things in the world, _children 's toys_ are THE most amenable to
replacement by makers, tinkerers, and other people who want to _do something_
in the real world.

(Alas, that's not what's happened. People just buy the cheap plastic crap from
Amazon.)

~~~
EnFinlay
Doesn't Toys 'R' Us sell the same "cheap plastic crap" as Amazon?

~~~
bspn
Amazon sells a slightly different but much wider range of "cheap plastic crap"
thanks to FBA. There's no shortage of budding sellers with an Alibaba account
who think they have the next best thing (read: re-labeled, generic Chinese
crap) and flood the market with crazy cheap products making it difficult for
bricks and mortar retailers to compete.

A store like Toys 'R' Us may have a slight advantage when it comes to licensed
merchandise, but I think even most of the big sellers long ago accepted that
it's impossible to ignore the Amazon juggernaut and now also sell on the
platform.

------
otoburb
Does this mean that the "R Us" trademark suits will cease[1]?

[1] [https://www.lexisnexis.com/legalnewsroom/intellectual-
proper...](https://www.lexisnexis.com/legalnewsroom/intellectual-
property/b/copyright-trademark-law-blog/archive/2011/05/12/like-a-scene-from-
the-godfather-toys-r-us-tells-smokes-r-us-don-t-mess-with-the-family-of-marks-
free-download.aspx)

~~~
Keyframe
Or intensify?

------
kemiller
Can someone explain why it would be loaded up with debt on going private?

~~~
xenadu02
Bain (and their horrible ilk) put up a tiny amount of capital to secure huge
loans. They used those loans to buy the company, taking it private. Once it is
private they can do whatever they like with it; they pay themselves back for
the loans by loading the company up with debt (and then some to ensure an
immediate profit). They cut everything to the bone, fire as many people as
possible, then spin the husk back out as a public company (or offload it to
some other sucker).

Bain effectively risked nothing to make a killing and ensure Toys-R-Us would
eventually file for bankruptcy due to an unsustainable debt load. Banks are
happy to loan Bain money for these schemes because Bain makes a killing on
them and private equity almost always finds a sucker dumb enough to buy the
zombie company off them. (Every once in a while the zombie goes south so fast
private equity is left holding the bag).

For loans to the zombie company the terms are punishing enough the bank only
needs the zombie to survive for a limited amount of time.

The part I don't understand yet is who is the dumb money buying shares in
these hollowed-out debt-laden husks from the private capital vultures? It
almost always ends up badly. Even when it doesn't the upside isn't great.

FWIW Guitar Center is almost certainly headed for the same end and for the
same reason.

~~~
ShardPhoenix
>The part I don't understand yet is who is the dumb money buying shares in
these hollowed-out debt-laden husks from the private capital vultures? It
almost always ends up badly.

Is this based on reliable statistics or on highly visible anecdotes? Perhaps
the "dumb money" isn't as dumb as you think.

------
vonkale
From SEC (shortened):

+-----------------+--------+--------+--------+

| In millions | 2017 | 2016 | 2015 |

+-----------------+--------+--------+--------+

| Net Sales | 11,540 | 11,802 | 12,361 |

| COGS | -7,432 | -7,576 | -7,931 |

| Operating Earn. | -460 | -378 | -191 |

| Interests | -455 | -426 | -447 |

| Total loss | -6 | -156 | -452 |

+-----------------+--------+--------+--------+

1\. Their revenue is quite stable but decreasing 2\. Their EBIT is positive
and increasing 3\. Their operating cashflow is negative but increasing 4\. So
they seem to be running out of cash... 5\. They cannot lend more with such bad
terms eg. 12% interests.

------
slantedview
Leveraged buyouts take down another victim. As always, it's shocking that
these are legal.

------
IMTDb
"Ratings agencies have rushed to cut their credit ratings on Toys “R” Us to
reflect the sinking market sentiment...[S&P] had the retailer rated B- just
two weeks ago, and Moody’s Investors Service still has a B3 rating and stable
outlook for the name."

Ratings agencies once again showing how efficient they are at actually rating
debt. B3 and stable outlook for a company that has actually field for
bankruptcy, you gotta be kidding me.

------
andreygrehov
I'm not surprised. They sell pure garbage. Every single time I go there to get
a toy for my kid, I can't pick anything. I end up spending an hour walking
around choosing the best of the worst and keep repeating to to myself
something like: "Where does this shitty store get the money to pay the rent?"

~~~
taf2
While I agree... as a kid I have very fond memories... makes me kind of sad. I
see the same excitement now in my kids...

~~~
andreygrehov
I moved to U.S. just a few years ago, but I know what you mean. The bar to
kids' happiness is very low, which is, unfortunately, not the same with
adults, including myself.

~~~
pbhjpbhj
The kids are thinking "did that look cool" and are swayed by the box and
presentation (eg big box to hide the small size of the toy, etc.).

Adults are wise to the tricks and look for a toy that's not just good to play
with "right now" but also will last to be played with again, and will still
entertain when the box is open and the novelty has faded.

In short kids are an easy mark (easy to con).

------
m23khan
What are toys these days? VTech LED craziness or Lego-on-steroids? No kid
(even Babies it seem) are interested in old fashion wooden/metal toys whereas
toddlers+ are only interested in digital/musical/mechanical stuff that feels
all 'plasticy' and 'gimmicky'.

Let's face it - kids these days are taught to follow the latest 'fads' when it
comes to toys and to feel everything they own is super disposable -- similar
to their parents.

No wonder Toys R Us can't meet the budgetary requirements of a modern parent
whose kids are so fussy when it comes to toys that as soon as the kid is 7/8
years old, the focus is shifted to electronic gadgets and the modern sport
'app'rchery.

------
Crontab
I have come to the conclusion that it is very hard for a specialty businesses
to survive in the era of Walmart and Amazon - which does not bode well long
term for places like Barnes & Noble and Gamestop. I hope I am wrong.

~~~
zabuni
At least for Gamestop, you're probably not wrong. Amazon Prime gets you new
video games at 20% off MSRP. That's cheaper than what the distributor sells
them for.

~~~
hn_user2
I think GameStop makes most of its money buying trade-ins. Perhaps they are
more in the pawn shop business than the video game business?

~~~
midnightclubbed
Go into your local Gamestop for a copy of Destiny 2 and see how hard they try
to push you into buying a pre-owned (used) copy for $55 over the new copy for
$60.

Their trade-in value for Destiny 2 is $24 (in store credit) and their pre-
owned purchase price is $55. No wonder the sales staff force the pre-owned
games over new.

Gamestop gave the middle finger to game producers when they realized how
selling used games was way more profitable than new. When they file for
chapter 11 in the near future they will claim downloadable games and
competition from Amazon killed their business rather than their greed causing
their suppliers to find alternative sales channels.

------
tempestn
> With speculation of a bankruptcy mounting, shares of Toys “R” Us’s vendors
> tumbled on Monday. Mattel Inc., the maker of Barbie and Fisher-Price, fell
> 6.2 percent -- its worst decline in seven weeks. Shares of Hasbro, the
> company behind Monopoly, Nerf and Transformers, dropped 1.7 percent.

Does Toys R Us owe money to Mattel? Or are people thinking that if they go
away or significantly reorganize people will just buy fewer toys of these
types? On the surface a 6% drop for Mattel seems huge based on this news. If a
grocery chain goes into bankruptcy, you're not going to see Coca Cola stock
drop..

~~~
danhak
According to this article, Toys "R" Us accounts for about 10% of Mattel's
revenue. That seems pretty significant:

[https://www.reuters.com/article/us-orbital-atk-northrop-
grum...](https://www.reuters.com/article/us-orbital-atk-northrop-
grumman/northrop-grumman-nears-deal-to-purchase-orbital-atk-source-
idUSKCN1BS0YB)

~~~
tempestn
If Toys R Us is responsible for about 10% of all toy sales by revenue that
wouldn't be terribly meaningful, but yeah, if they sell proportionally more
Mattel toys, whereas other retailers might sell comparable toys from other
brands more, that could certainly account for it. Thanks.

------
Spooky23
Too bad. Toys r Us has a great selection and good pricing. I found that they
almost always beat Amazon on toys and eliminated the risk of counterfeit
stuff, especially for things like Lego.

------
speg
Aw man, I've just rediscovered this place with our 9 month old son. Was
looking forward to going there as he grew up. Hopefully they can work out some
sort of restructuring..

~~~
magic_beans
Most kids are just as happy playing with the wrapping paper as with the toy
inside.

That is to say: your son will be just as happy with something you two might
find or make together.

~~~
criddell
Star Wars action figure? No way. Lets get some paper towel tubes, markers, and
glitter and make our own!

~~~
ksenzee
The original post was about a 9-month-old. No baby that age cares in the
slightest about Star Wars, but they love boxes.

~~~
criddell
Well, he also was talking about the future.

------
euske
This episode of Planet Money (best podcast evah btw) kinda explains why
retails like Toys`R'Us was defeated by Amazon.

[http://www.npr.org/sections/money/2017/07/26/539552579/episo...](http://www.npr.org/sections/money/2017/07/26/539552579/episode-629-buy-
low-sell-prime)

------
marcell
Toys 'R' Us might have been a great store when we (I) were kids, but I went
there a few months back--what a wasteland. Barbie, GI Joe, and movie tie-in
action figures as far as the I can see. Good riddance. People can buy crappy
Angry Birds dolls on Amazon just as well as Toys 'R' Us.

I hope this opens up opportunities for superior brick & mortar toy stores.

~~~
tssva
When was it anything but Barbie, GI Joe and movie tie-in action figures? That
is mostly what it was in the 70s and 80s when I was a kid. 1/2 the movie
action figures are probably Star Wars just like when I was a kid.

------
kizer
Damn. I was just in one like two weeks ago looking for a laser tag system. The
prominent NERF gun display right by the entrance was glorious. NERF has
progressed significantly and has also developed a new kind of spherical ammo
in case you were wondering. I'll have to buy a few while they're on clearance.

------
runesoerensen
They've just filed for bankruptcy [https://www.toysrusinc.com/press/toysrus-
inc-commences-court...](https://www.toysrusinc.com/press/toysrus-inc-
commences-court-supervised-processes-to-implement-financial-restructuring)

------
aklemm
A toy store that isn't even a little magical to walk into is not long for this
world.

------
krob
I don't want to grow up, I want to be a Toys `R` Us kid......

------
yeukhon
When they closed down its flagship at Time Square, I was expecting TRU not
doing very well.

------
ars
I guess I'm never getting my eToys gift certificate redeemed then :(

------
downrightmike
Ah yes, another Bane Capital success story.

