UPDATE: On Monday, Toys R Us said in a release it had closed on $3.1 billion in bankruptcy financing from a group of lenders led by JPMorgan. The retailer said the funds would be used to modernize its stores as well as update its e-commerce platform and infrastructure.
Toys R Us announced Sept. 21 it would begin hiring seasonal workers in stores and in fulfillment operations in six of its top markets, including New York City, Los Angeles, Philadelphia, Chicago, Boston and Groveport, OH (where it partners with DHL at a fulfillment center), according to a company press release.
The retailer expects seasonal jobs in those markets to top 12,000, according to the release. The hiring announcement came just over a week after the toy retailer filed for Chapter 11 bankruptcy following years of struggling with a multibillion dollar debt load.
Toys R Us has locked down the cash to hire extra help and keep its stores open, stocked and manned through the bankruptcy process. Perhaps more importantly, it has funds to invest in its stores and website so it can try to catch up with the retail world after years of losing market share to mass merchants and online players.
The financing also signals confidence from key lenders in the company and its brand — and will keep it afloat through the most important period of the retailer’s year.
Just as the holiday sales season was starting to ramp up, Toys R Us found itself in a perilous position. In the days and weeks leading up to its filing, many of its vendors, spooked by that the retailer had hired Kirkland & Ellis to advise it on options to restructure its 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.
"The timing of all of this could not have been worse, as the company is in the process of building holiday inventory," Toys R Us CEO Dave Brandon said in the bankruptcy filing, adding that Toys R Us generates 40% of its annual revenue in the weeks before Christmas.
"When you go bankrupt, the retailers always try to go in January," Howard Davidowitz, chairman of New York City-based retail consulting and investment banking firm Davidowitz & Associates, told Retail Dive. "It leaves you in a much stronger position. In January, you have the peak debt — you owe your vendors the most money — but you have all the cash because they do all the business in the last quarter."
Bankruptcy could allow a retailer in that scenario to wiggle out of some obligations to vendors while sitting on its biggest pile of cash. But with vendors balking at Toys R Us’s prospects, the company needed more debt in order to be able to even open for the holidays.
"They do more of a percentage at the holidays than anybody on the planet. Can you imagine that? What this means is — the trade cut them off — they can’t pay their bills," Davidowitz said, who also called the timing of the retailer’s bankruptcy "badly, badly botched."
The timing of the filing took some by surprise, as Toys R Us did not appear to be at imminent risk of bankruptcy. Analysts at Debtwire and Fitch, in interviews during the days between the initial news reports of the retailer bringing on Kirkland & Ellis and the filing, told Retail Dive that the company seemed to have enough liquidity to stock its shelves through the holiday season and into next year's debt maturity, which was $400 million compared to the headache-inducing $2.6 billion due in 2019.