Bloomberg reports this morning that Toys R Us, having been unable to find a buyer for the company or restructure its debt, now is preparing to liquidate all of its US operations.
According to the story, “Although the situation is still fluid, a winding down of the U.S. division has become increasingly likely in recent days … Hopes are fading that a buyer will emerge to keep some of the business operating or that lenders will agree on terms of a debt restructuring.”
Toys R Us filed for bankruptcy protection last September, and then had a holiday season that was worse than expected. It entered the year with about 800 stores in the US, but had already announced plans to close about a quarter of its fleet.
Any US liquidation will not affect the company’s global operations, though its Europe and Canada businesses also have been in trouble. The company’s Asia business has been profitable.
According to the story, “Although the situation is still fluid, a winding down of the U.S. division has become increasingly likely in recent days … Hopes are fading that a buyer will emerge to keep some of the business operating or that lenders will agree on terms of a debt restructuring.”
Toys R Us filed for bankruptcy protection last September, and then had a holiday season that was worse than expected. It entered the year with about 800 stores in the US, but had already announced plans to close about a quarter of its fleet.
Any US liquidation will not affect the company’s global operations, though its Europe and Canada businesses also have been in trouble. The company’s Asia business has been profitable.
- KC's View:
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Good to know, even as Toys R Us’s stores circle the toilet, that its senior executives can drive to their big, fancy homes at night, warm in their luxury cars, knowing that they were successful at one thing - persuading a bankruptcy court judge to allow them to be paid millions of dollars in bonuses that they said would incentivize them to stay at Toys R Us.
One MNB reader wrote to me early this morning about this story, and pointed out the following passage from the Bloomberg story:
The downfall of Toys R Us can be traced back to a $7.5-billion leveraged buyout in 2005, when Bain Capital, KKR & Co. and Vornado Realty Trust loaded the company with debt to take it private. For years, the retailer was able to refinance its debt and delay a reckoning. But the emergence of online competitors, such as Amazon.com Inc., weighed on results. Massive interest payments also sucked up resources that could have gone toward technology and improving operations.
And, this reader wrote:
Like your thoughts on tobacco execs, I hope there is a special circle in hell for the VCs who steal the value from these businesses then dump the flaming corpses leaving a trail of unemployed workers and empty buildings.
How much more competitive could TRU have been if they were not funneling all their earnings to pay down debt that the VCs brought on to complete the buyout?
Companies need to innovate and deliver on solid customer experiences but they can't do that if excessive debt is forced on them.
Couldn’t have said it better myself.
