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Toys 'R' Us Plans Bankruptcy Filing As Soon As Today
Toys 'R' Us Has Been Working With Lawyers To Address Its Crushing Debt Load (CCSS Level: Grade 8, Words: 545)
Sep 19, 2017 Style & Living
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Toys 'R' Us has been a rock in a struggling industry. Toymakers have come under pressure from cheaper off-shore imports, with margins squeezing big-box retailers and children who increasingly prefer tablets to toys.

As MaxNewz has previously reported, Lego announced plans to lay off 8 percent of its workforce earlier this month.

Toys 'R' Us Inc., which has struggled to lift its fortunes since a buyout loaded the retailer with debt more than a decade ago, is preparing a bankruptcy filing as soon as today, according to people familiar with the situation.

The Chapter 11 reorganisation of America's largest toy retail chain would deal another blow to a high-street store industry that's already suffered from store closures, slowing mall traffic and the threat of online giant Amazon.

The filing would allow Toys 'R' Us to restructure $400 million in debt in 2018. The debt restructuring would help provide Toys 'R' Us the financial flexibility to invest in its business as it repositions itself to combat a changing retail landscape. The retailer has hired a claims agent, which typically helps with administering such a process. And its vendors have been curtailing shipments amid concern that Toys 'R' Us might not be able to pay its bills.

"This filing is really a buildup of financial problems over the past 15 years," said Jim Silver, an industry analyst and the editor of toy-review site TTPM.com. "Finally, the straw broke the camel's back."

With speculation of a bankruptcy mounting, shares of Toys 'R' Us's vendors fell 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. Mattel Inc., has watched its stock drop near 60 percent over the past five years, hurt by the loss of the Frozen toy license agreement to Hasbro and a shift in popularity of one of its core toys, Barbie.

A Toys 'R' Us bankruptcy does not necessarily mean the company will close stores, and retailers such as Macy's have operated through bankruptcy before. For the major toy companies, there may be real interest in ensuring Toys 'R' Us successfully comes out the other end of a debt restructuring.

"They're the only true showroom the industry has," said toy industry analyst Richard Gottlieb. The showroom is also important to movie studios, which use toys to market their movies. For example, Force Friday on Sept 1 was a chance to debut all the toys inspired by the newest Star Wars movie, "Star Wars: The Last Jedi." Star Wars is produced by Walt Disney-owned Lucasfilm. "If I want to run a major TV campaign with a product, I need to have Toy's support," said Gottlieb.

To be sure, the toy industry could reduce their dependence on Toys 'R' Us in just the same way sports brands have moved from the struggling sporting good retailers, building up their own websites and direct-to-consumer business. Direct-to-consumer sales are more profitable than going though a third-party retailer.

One of the quickest growing channels, of course, is Amazon. The e-retailer is the doing well from millennial parents, and is quickly becoming the No.2 toy retailer behind Wal-Mart.

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