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Toys R Us: From Powerful Business to Bankrupt

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toys r us

If you are a kid from the 80’s or 90’s we are all grieving the loss of Toy’s R Us. When you hear the phrase ‘I don’t want to grow up’ your next thought is automatically ‘I’m a Toys R Us kid’. There is even a line that goes like this. ‘I don’t wanna grow up, cause maybe if I did I couldn’t be a Toys R Us kid’.

Well, I guess they all grew up. There are no more Toys R Us kids.

So, how did this huge nostalgic powerful toy chain go under? Many of us are thinking we would never see the day.

Did it have to do with growing up?

Did they fail at adulting?

Would they rather keep being kids then run a business?

What happened?!?

Debt

As I write this I have a vision of Dave Ramsey facepalming at this one. Toys R Us was drowning in unbelievable debt. How bad was it? In 2017 Toys R Us has $5 billion in debt.

How did this happen?

In 2005 a number of companies bought out Toys R Us, changing its status from publically owned to private. This was a substantial amount of debt. To the tune of $400 million per year in debt repayment.

Put out by Amazon?

Well, yes and no. Amazon didn’t do anything wrong, they were competing too. I would choose online shopping over being run over on Black Friday any day. That’s just me. However, it wasn’t just Amazon.  Wal-Mart and Target also wanted a slice of the pie too. They took full advantage of the situation. Who can blame them?  Since Toys R Us filed in September that gave the competition plenty of time to scoop up all those sales and make Black Friday truly profitable them.

How could Toys R Us let that happen

Here’s the thing. Toys R US had a lot going for it with its well recognized and respected brand. Had it been able to invest in its business to compete digitally the situation may have been different.  But, the debt payments were drowning the business. If they didn’t have so much debt they could have used that money to reinvest in their business and actually compete.

Bad Luck

2017 was a full of bad luck for Toys R Us. In order to stay open through the holidays, they filed for bankruptcy. Right before their busiest season that typically puts them in the black for the year. Then to make matters worse they filed with no explicit plan in place to get back on their feet. Creditors and vendors were starting to freak out a bit and halt shipments.

Were they bound to fail eventually?

Back in the day Toys R Us’s main advantage was its substantial inventory. If a toy was to be had you could find it at Toys R Us. But, the competition started to catch up. They offer the same specialty toys as Toys R Us plus much more. They have also reinvested into their business to compete digitally. Something that Toys R Us’s substantial debt would not allow it to do. This was bound to fail.

What now?

Sadly, many hardworking people will lose their jobs as a result of this bankruptcy. However, it’s just another big box chain shutting down after making bad choices. Ultimately, the debt is what killed them so there is something to learn from all this. Amazon, Target, and Wal-Mart will gain that market share.The free market will readjust. As a result of the bankruptcy, competitors will grow. They will need to hire more employees to keep up with the work. They can call up the former Toys R Us employees, they already have experience. Then they have jobs once again.

We might see an uptick in smaller local stores. These toy artisans can offer something handcrafted and unique that the competition can’t replicate.

Sadly, many smaller vendors with Toy’s R Us will be negatively impacted. As some may not be paid. However, I think that may be the only bad part. I’m a fan of a growing small and local businesses, and big box chains seem to squash that. But, again, the economy will adjust accordingly like it always does.

Moral of the story, don’t drown in debt to be in business! Maybe they could have scaled back a little or not bought as much real estate it’s hard to say at this point. Hands down, the obscene debt is what sunk this business.

When it’s to the point that you can’t even re-invest into your business to stay afloat you’ve got some major problems. Especially when you are that big and have such solid brand recognition!

John Lekas from Leader Capital Corp was right when he said: “They’ve been trying to hold it together with Elmer’s glue and Scotch tape.” It hasn’t been a solid business for a while and now it crumbled.