Anyone who wants to understand the failure of Toys R Us in bankruptcy is not going to suffer from a shortage of reasons: Amazon, Walmart, Target. E-commerce. Loss leaders. Price wars. Debt. Private equity. Kids who prefer screens to Super Soakers.
The story of the retailer’s journey from big box dominance to liquidation — barring some last-minute salvation by an outsider — was long. And the people running the retailer’s stores saw it firsthand. Over the decades, Toys R Us has amassed a devoted tribe of employees, tens of thousands strong, many of whom were caught offguard by the company’s liquidation, if not its bankruptcy.
They have perhaps the most detailed, close-up view of the retailer as it went into decline and ultimately bankruptcy. Over the years, Toys R Us didn’t just get undercut on toy prices or miss out on the e-commerce revolution. The retailer, especially after its 2005 leveraged buyout, continually underinvested in its business and employees, according to current and former employees.
Stores went without maintenance. Dust collected on the floors and rafters as cleaning services were cut back. Employees grappled with expanding work loads. Knowledgeable staff were let go in cost-cutting campaigns. Key customer satisfaction metrics were fudged. Shrink increased. Key IT systems failed at the worst times.
On paper, much of this may have represented fiscal conservatism to managers and owners, and may have been necessary as the company battled with price pressures and the interest burdens of a $5 billion debt load. But at the store level, where most of retail still happens, Toys R Us was, arguably, stripping itself of reasons for customers to shop as those reasons became more important than ever.
A Toys R Us spokesperson did not respond to request for comment on this story.
From reorganization to liquidation
The immediate reasons for the the collapse of Toys R Us in bankruptcy are fairly straightforward, at least given what we know. (And there are a lot of details, mainly having to do with backroom negotiations among stakeholders, that we don’t know.)
After a terrible holiday performance last year, the toy retailer, totally outflanked by rivals, missed targets attached to its bankruptcy loan and breached covenants on the loan — the specifics of which few people beyond some very engaged creditors were aware of. Lenders, now with new legal leverage, also lost faith in the retailer’s ability to repay after the poor holiday showing. Toys R Us tried to find a buyer, and reportedly had serious interest. But no deal emerged, and powerful groups of lenders (as they would time and again this year) saw more value in the company’s parts than its sum. Liquidating immediately would prevent Toys R Us from burning through more lender-provided cash until the next holiday season, which would bring an uncertain outcome.