Toys R Us' UK unit begins liquidation
- After failing to find a buyer, the liquidation process for Toys R Us' United Kingdom unit has begun. The company's website notes that it that it is currently in administration, meaning outside parties (from Moorfields Advisory) have been appointed to wind down the company.
- According to the BBC, Toys R Us in the U.K. has a £15m tax bill ($20.7 million U.S.), which the company is unlikely to pay because of poor sales. One of the company's bankruptcy administrators told the BBC that a search is still underway for a buyer for all or part of the company. The administrator said that the stores will remain open for now during an "orderly" wind-down process. The failure of the U.K. unit comes as its parent company's fate has come into question while Toys R Us tries to restructure in Chapter 11.
- As the U.K. unit begins unwinding, Toys R Us is in talks to sell its Asian unit to the Fung Group, which owns a stake in the joint venture for the unit, Bloomberg reported, citing unnamed sources. A deal could give give the Toys R Us Asia unit a valuation of $1 billion or higher, a source told Bloomberg. Toys R Us began exploring a sale of the unit last fall.
Executives hoped to shrink Toys R Us' U.K. unit and focus attention on the business' newer, smaller stores, while closing its warehouse stores. That plan, now, looks all but doomed unless a buyer suddenly materializes to save the company.
Hurting the U.K. unit's sales was competition from online players. That means Amazon, but it also means the British toy seller Smyths. GlobalData found that "the rise of multichannel player Smyths caused even more damage than Amazon."
"The internet did take away Toys R Us' main USP, which was having such a wide range ('everything under one roof'), but its failure to react in terms of the shopping experience, pricing and its own website, is in stark contrast to the more imaginative reaction of Smyths, and to a lesser extent The Entertainer," Patrick O'Brien, retail research director at GlobalData, said in a note emailed to Retail Dive.
The collapse of the U.K. unit is a fate not entirely out-of-the-question for the retailer's U.S. arm, as reports surface that the company might have to close nearly half its domestic stores (after initially announcing that it would close 180 stores, or 20% of the Toys R Us footprint).
More ominously, CNBC has reported that Toys R Us is at risk of breaking the covenants on its bankruptcy loan, which could force the company into liquidation if it can't find a fix.
Even without the specter of forced liquidation, Toys R Us faces an ongoing, yet mounting, challenge. After years of underinvestment, the toy retailer has a long way to go to close the gap with rivals and successfully reposition itself. Current and former employees have told Retail Dive that inadequate IT infrastructure led to disastrous missteps over the holidays, which saw a steep sales decline, as customer orders went unfulfilled.
Follow Ben Unglesbee on Twitter