One year later: Toys R Us' fatal journey through Chapter 11
On the anniversary of the toy seller's disastrous bankruptcy, here is a look back at all the twists and turns in one of the largest and most dramatic Chapter 11s in retail history.
A year has passed since Toys R Us filed for Chapter 11 protection. Since then, much of the retail world, including this publication, has obsessed over every turn of events in the retailer's case and turnaround efforts.
There's good reason for that. By assets, Toys R Us is the third-largest retail bankruptcy ever, behind Kmart and Federated Department stores, according to Bankruptcydata.com. The retailer, which generated $11.5 billion in yearly sales, also represented the last national dedicated toy store and was one of the largest sellers of infant products. Its bankruptcy and following liquidation opened major holes in the market in the U.S. and abroad.
Beyond the broader impact, the Toys R Us bankruptcy has been packed with plot twists, conflict and intrigue. The Chapter 11 filing, initially billed by executives as an opportunity to transform the business for the better, proved disastrous. It set the stage for a horrendous holiday season, replete with IT outages, outraged customers and ascendant competitors. That, in turn, set the stage for lenders to force the retailer to liquidate, which put some 30,000 employees out of jobs and put suppliers out hundreds of millions of dollars in trade credit.
The dust still hasn't fully cleared. There are still empty stores to fill, assets to sell and market share for scrambling competitors to claim. We don't yet know who will secure the company's toy and baby sales permanently, nor do we know if some revived version of Toys R Us will emerge from the company's upcoming intellectual property auction. One thing is certain, though: The toy seller as we knew it — the company that Charles Lazarus built from a single baby furniture store — is gone.
What follows is a timeline of the major events so far:
Sept. 5, 2017
Reports break that Toys R Us is exploring bankruptcy
Although Toys R Us carried over $5 billion in debt, few analysts last summer saw the retailer as an immediate bankruptcy risk. The company's next significant maturity wasn't scheduled until 2018, and even that was far smaller than the $2.6 billion due in 2019. Still, Toys R Us had in recent years suffered competitively and financially, paying down $400 million in annual interest leftover from its leveraged buyout while customers abandoned its neglected stores for rivals. Then, in early September, CNBC reported that Toys R Us had hired debt advisers and was mulling a potential bankruptcy filing. Several other news organizations followed up with their own reports.
Inside the 20-year decline of Toys R Us ➔
Sept. 18, 2017
Toys R Us files for Chapter 11 protection
Suppliers to Toys R Us clammed up following the reports that Toys R Us had hired financial advisers, creating a run on the retailer that led it to file for bankruptcy. Then-CEO Dave Brandon said in court papers the company faced a sudden, unplanned liquidity need of $1 billion as suppliers started demanding stricter payment terms on shipments. The retailer from the time of filing said it planned to use the Chapter 11 process to clean up its finances and reposition itself competitively for the long-term. Shortly following the filing, the retailer announced a new $3 billion bankruptcy financing package to keep it operating and a brand reboot that highlighted Toys R Us stores as a place for experiential shopping and free play.
Could this be the last generation of Toys R Us kids? ➔
November to December 2017
Holiday sales plummet
Last winter, Toys R Us faced the most important holiday season of its life. The fourth quarter historically accounted for 40% of the retailer's revenue. For years it had been losing market share to Walmart, Amazon and Target, which could compete fiercely on price and use toys as loss leaders to lure customers to their stores and websites during the holiday season. In Q4, Toys R Us consistently priced higher than key competitors, according to data shared with Retail Dive at the time, and its price matching strategy was out of step with modern practices. Meanwhile, many customers avoided purchasing the retailer's giftcards following its Chapter 11 filing, lawyers said in court later. Making matters even worse, years of underinvestment in IT systems led to numerous operational flubs, leaving many customers furious after orders they purchased online shipped late or not at all. As a result of all this, the retailer's holiday sales fell year over year by more than 10%, according to some accounts.
How Toys R Us is letting Target and Amazon steal Christmas ➔
Jan. 24, 2018
Toys R Us announces plans to close 180 stores
Retailers such as Payless, Gymboree, rue21 and others that successfully exited Chapter 11 last year did so after filing with detailed plans already drawn up and backed by key stakeholders. More often than not, this is key to a successful bankruptcy turnaround, as retailers by law have a constricted timeline to choose which leases they want to exit during the case. Toys R Us had no plan for closing stores or removing debt, having filed before it could negotiate one with creditors. In late January, it made its first move to shrink its store base, by 180 stores, or roughly 20% of its footprint. But reports followed weeks later that it could close hundreds of more stores. Unknown to most at this time, Toys R Us faced losing its financial lifeline from bankruptcy creditors and was frantically trying to work out a reorganization plan that would leave some kind of physical remnant of the retailer.
Toys R Us could close more stores or liquidate ➔
March 15, 2018
Toys R Us moves in court to liquidate U.S. business
Toys R Us' poor holiday season quickly morphed into an existential catastrophe. Attached to the retailer's bankruptcy loan were targets on Q4 sales and profits. Toys R Us fell well short of those goals, triggering covenant defaults, attorneys said later in court papers. Key lenders gave Toys R Us extensions into March, but they ultimately decided that their best path to repayment was to liquidate the company's operations.
Toys R Us moved in mid-March to wind-down its domestic business. Attorneys for the retailer said at the time they found a potential buyer for its Canadian unit. They indicated that same deal could also keep alive 200 Toys R Us stores. No such deal emerged, but toymaker Isaac Larian, after initially trying and failing to buy Toys R Us' Canadian unit together with hundreds of U.S. stores, kept up an effort to buy a large fraction of the retailer's domestic operations. Fairfax Financial ultimately put in the winning bid for Toys R Us' Canadian unit. Larian, meanwhile, failed to put up enough money to buy the U.S. stores. (Former Toys R Us CEO Jerry Storch is also reportedly involved in an effort to keep alive a large fraction of the retailer's U.S. stores following the company's IP auction, currently scheduled for October.)
In mid-May, the company cleared out its executive team. In June, Toys R Us closed the last of its domestic stores.
How Toys R Us' bankruptcy hopes came crashing down ➔
July 17, 2018
Settlement agreement reached with suppliers
Following the terrible holiday showing, Toys R Us' suppliers were mostly in the dark about the retailer's negotiations with lenders over cash and the very real possibility of liquidation. And while the stage was set for the company's wind down, Toys R Us was still buying from suppliers both large and small. In some cases, suppliers said Toys R Us even accelerated orders in January and February, when it knew it missed its Q4 targets and had potentially triggered a default on its bankruptcy loan. Others told Retail Dive that executives with the retailer were actively pressuring them in early 2018 to ship on credit. The move to liquidate inside of Chapter 11 ultimately meant suppliers and vendors lost hundreds of millions of dollars they extended in trade credit to Toys R Us. In July, major suppliers reached a settlement for dimes and nickels on the dollar for what they were owed. While that resolved many dozens of potential legal disputes, the Toys R Us case rattled the faith of some suppliers in the Chapter 11 process.
Burned by Toys R Us, will suppliers ever trust a bankrupt retailer again? ➔
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