Toys R Us reportedly preparing to liquidate US business
- Multiple news organizations have reported that Toys R Us is preparing to liquidate all of its U.S. stores after it failed to reach an agreement to restructure its business in Chapter 11. A Toys R Us spokesperson said in an email to Retail Dive, "At this time we do not have a comment to share."
- CNBC, citing unnamed sources, reported on Thursday that the ailing, bankrupt toy seller "may soon liquidate its U.S. operations." But, the news service noted, one of its sources cautioned "that the situation remains fluid." Additionally, The Wall Street Journal reported that the retailer could close all its domestic stores. Bloomberg also reported that the company could shutter its U.S. operations after "failing to find a buyer or reach a debt restructuring deal with lenders." Debtwire also reported Thursday afternoon that the company is considering the sale or liquidation of some domestic entities as the company comes under pressure to liquidate from some lenders.
- The announcements follow much speculation within and outside the company that it might not survive its Chapter 11 case as a going concern, or at the very least might close far more stores than the 180 initially announced earlier this year. CNBC reported in February that Toys R Us was at risk of breaching a covenant in its bankruptcy loan, which carried the potential to force the business to liquidate.
Toys R Us had, through its marketing team and CEO, been quite vocal in the initial weeks and months following its bankruptcy filing in September. But, since news began breaking that the company could ultimately liquidate entirely, the retailer has been eerily quiet.
The initial Chapter 11 filling came at the worst possible moment, as the toy seller was preparing for the all-important holiday season. Following it, CEO Dave Brandon reassured the world that the retailer was still open for business and was using bankruptcy to reconfigure its operations for the long run, to meet retail's current challenges.
In a marketing campaign unveiled last fall, the toy retailer rebranded itself as a place where kids can engage in free play and physically test toys. The retailer’s attorneys echoed the message in bankruptcy in court, saying in essence that the world needed Toys R Us as the last remaining toy showroom.
But the holiday season proved dismal for the retailer, as it was plagued by operational problems that alienated customers and outflanked by competitors, all of it leading to a stark drop in sales at a time when it was desperate for a boost.
Worryingly, the company had yet to preview or even hint at some plan to restructure the company’s debt and reorganize in Chapter 11. Bloomberg reported on Thursday that "[h]opes 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."
As Joshua Friedman, a legal analyst with Debtwire, told Retail Dive in February: "Toys has been in bankruptcy for over four months now and still has not formulated a plan of reorganization. This could be a sign that the company is finding it hard to reach creditor consensus and might be unable to avoid liquidation."
Moreover, several current and former Toys R Us employees have told Retail Dive that they have not received from corporate leadership any whiff of a post-bankruptcy, go-forward strategy.
The lack of strategy guidance or bankruptcy plans has heightened tension within the company for some, with rumors and speculation circulating among some employees that the company could liquidate, as its fellow big box retailer Sports Authority did in 2016.
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