Big box toy retailer, Toys R Us, recently filed for Chapter 11 bankruptcy protection. As to the reason for the filing in advance of the all-important holiday season, the company pointed to a looming deadline to pay back $400 million of the $5 billion in long-term debt on its balance sheet.
The timing couldn’t be worse. The toy business is incredibly seasonal, with more than 40 percent of the company’s sales come in during the fourth quarter of the year. Even though the company announced that it is not immediately closing any of its 1,600 stores, the bankruptcy filing signals instability to skittish toy suppliers and certainly puts shoppers “in play” to consider Walmart, Target and Amazon for their holiday purchases.
Bankruptcy experts assert that Toys R Us is just running into the same headwinds that forced other big box retailers to file for Chapter 11: too much under-utilized real estate. While excessive debt and real estate overhang are contributing to the demise of the company, quite frankly, its real problem is far more severe. Here are the three key reasons why Toys R Us is going bankrupt and why its proposed turnaround actions may be futile:
Its brand story has lost its relevance.
Toys R Us is failing because the brand story is no longer relevant — not because people have stopped buying toys. According to the National Retail Federation, U.S. holiday sales grew 4 percent to $658.3 billion last year and they are forecast to grow 6 percent more this coming year. The fact is, people are still buying toys, they’re just not buying them at Toys R Us.
With more than 65 years in the toy business, the Toys R Us brand story has always centered on being the “toy authority” for parents and children alike. Do you remember Beanie Babies, Tickle Me Elmo, Furbies and Pokémon — the most sought-after holiday toys? The toys that your mom was willing to wrestle out of the hands of a complete stranger in the store? Let’s face it: Toys R Us was the place to get the hottest new toys and it had knowledgeable sales staff who would point you in the right direction during the holiday season. The brand story was about quality, value, selection and an in-store shopping experience focused on making the shopper the “hero.”
Related: 5 Businesses That Almost Failed and Showed Us Why It Pays to Keep Going
Today, however, no one wants to be in a Toys R Us store during the holidays –…
