Toys R Us is revamping its physical footprint, with plans to shutter some 180 locations, open another dozen and co-brand some spaces with Babies R Us, a company spokesperson told Retail Dive on Wednesday. Store closing sales will likely begin in early February and most stores will shutter by mid-April, according to a note to customers from CEO Dave Brandon posted to the company’s blog.
The company, which filed for bankruptcy protection in September, took into account store performance, the local market and overall financials, including lease terms, to decide whether to open or close locations in a given area, according to the spokesperson. The real estate plans must be approved by the bankruptcy court, according to documents.
The retailer will also reengineer its loyalty and CRM program and improve the overall customer experience online and in-store, the spokesperson said. Registry, credit, warranty and loyalty programs are being honored as always, the company also said in a blog post.
There’s no real sense yet of what kind of strength Toys R Us will demonstrate as it emerges from bankruptcy. The company is planning a significant number of closures, but Brandon in his message assured customers that the retailer will continue to operate "in all major markets across the U.S. and around the world."
Moody's Investors Service on Wednesday said that the closures will help. "Toys' store closings will reduce rent expense and allow the company to focus all of its operating efforts on only its best locations," Moody's Lead Retail Analyst Charlie O'Shea said in an email to Retail Dive. "Store closures and rent rationalization are critical facets of any bankruptcy process, allowing companies to reduce costs and ideally emerge with the strongest physical footprint possible."
But an "open question," he also said, "is what the impact will be on the two Propco loans that will be impacted by such real estate rationalization."
In any case, it's a less-than-ideal start to what will likely be a tough year for the iconic toy retailer. Such a drastic reduction in a retailer’s footprint isn’t by itself necessarily an indication of weakness, however. Kohl’s, for example, has positioned its brick-and-mortar contraction (which for the most part entails shrinking of store space rather than store closures) as a sign of strength.
But Toys R Us likely took a hit over the holidays. Already vulnerable to Amazon, whose toy sales have skyrocketed, the retailer filed for bankruptcy at probably the worst time, Brandon himself admitted last year, adding that the company generates 40% of its annual revenue in the weeks before Christmas.
In the days and weeks leading up to its filing, many vendors, spooked that the retailer had hired Kirkland & Ellis to advise it on options to restructure debt, began demanding strict terms for payments on product shipments. That created a sudden, unanticipated liquidity crunch for a retailer with little financial wiggle room.