As reported in The Wall Street Journal, Toys ‘R’ Us Inc. has filed for chapter 11 relief, as nervous suppliers have tightened terms for the retailer ahead of the crucial holiday selling season. The company, like many other big box chains, has struggled as shopping shifts online, pushing down prices and reducing store visits. Adding to this problem, Toys ‘R’ Us has been burdened with debt from a leveraged buyout 12 years ago. The retailer had been in talks with holders of more than $5 billion in debt to extend 2018 maturities and stave off a chapter 11 filing, although those talks failed.
As part of the restructuring process, Toys ‘R’ Us plans to close some underperforming stores. Its remaining locations would be reconfigured to be more experienced-based, incorporating amenities such as in-store play areas. The company expects most of its stores will be open for the holidays and it will use $3 billion in bankruptcy financing to continue buying merchandise and funding its operations. The company, which operates about 1,600 stores around the world, was a classic example of a “category killer,” a huge specialty store with low prices that squeezed independent shops. It swallowed up several rivals that have themselves filed for bankruptcy protection, including FAO Schwarz and Kay Bee Toys, a mall-based chain that liquidated hundreds of stores before it was sold.