Toys R Us - Reflections on Bankruptcy from Blaine, MN

In today's retail climate, long established businesses are dropping like flies. One of the saddest of all recent business closures, would be the toy vending giant, Toys R Us.


A few nights ago, Laura and I were out running Aarons, and she wanted a plate of Orange Chicken and Fried Rice from LeAnn Chin's.  I chose only a napkin and a single spoonful, as that napkin was just slightly less greasy... As she ate, she suggested that I walk across the street to the closing Toys R Us, and see if they had anything I was collecting, available at a deep store closing discount...

Sounds like a great idea to me!


There were more cars in the lot than I'd expected. 


Store closing banners were growing out of the ground around the store. A sure sign that while a building isn't abandoned quite yet, in a matter of weeks, I will have a new abandoned building to photograph for my collection. A collection that I'm beginning to take more pride in than all of the other stupid things I've saved over the years.


Business was expected to be so hot, Toys R Us put cart returns in every aisle.


Some were older than others...


Before we enter to see what hasn't yet been picked over, just who is responsible for this?

Well, back in 1957, Charles Lazarus opened the first Toys R Us, outside Washington DC. According to his story, after he and he friends left the military, the plan most of them had was to settle down, get married and raise a family. After thinking about ways to profit off said plans, Lazarus noticed that retail was becoming more specialized, but an underrepresented market was that of children.


Lazarus' idea took off and boomed. By the mid 1980's there were over 200 Toys R Us stores across the country.


I don't know when the Blaine, MN Toys R Us store opened, but I remember seeing it first in the mid 1980's. (Photo from a couple of years ago, when business was only just bad...)

The first time I remember actually going in to Toys R Us, was at some point in early 1988. I'd just gotten the vaunted Nintendo Entertainment System for my birfday, and there was one game I needed to own. After striking out at all other area retailers, I begged my mom to take me to where Geoffrey the Giraffe lived, because they would surely have a copy...


And they did! 


I could finally play a version of the original Mario Bros., that would be infinitely better than the atrociously awful Atari 2600 version that I'd been playing for the last couple of years...


Which was better to be certain, but still a disappointing adaptation of the original...

At least it's better than what Atari had vomited out...


Finally I had to just admit that if I wanted to play a decent version of Mario Bros. at home, I needed to just buy the damn machine. Which I did in June, 1996.

(Pac Man joined the family 4 years later, but not from Toys R Us...)

But all of that is an entirely different story... 

So let's go inside!


Oh my GOD!!! Toys R Us is closing?!?!?! 

They could at least tell us or something!


Even the walls are having an "Rrrrrrrrrrrrrrrrrr spaz..."

(No one gets that joke...)


I'd been carrying my camera with me after shooting some abandoned buildings in the area during that afternoon. And it took about 20 seconds of me walking around inside to come up with this story idea. 


Seeing small piles and depleted displays of unwanted merchandise, mixed amongst completely empty shelving and fixtures, with some areas blocked off by caution tape, made me think of how depressing this site truly was...


A place once full of life and wonder, has had the cord yanked out of the wall. All that was left now was for the carcass to be picked clean.

Since I saw very few employees, I pulled my camera from my pocket and snapped a picture of some empty shelving. I didn't use flash (so some of these pictures aren't as crisp as I would have liked), but I didn't want to arouse suspicion on my new top secret mission.

However, it's not like too many employees were really going to care at this point. In less than two weeks, they are all out of a job. No severance, no pension, just goodbye...


A visit to Toys R Us.com instantly brings up a message reading: 

"Thanks for visiting. We have shut down the website for any purchases, but our brick and mortar stores are open and holding going out of business sales..."

Yes they are...


As the merchandise was selling off, everything left over was being pushed to the front and middle of the stores. Creating weird mashups of merchandise in pockets all over the store.


Remember Karate Champ and Bad Dudes from the 1980's video arcades? 

Well, there's a bunch of micro arcade games of them leftover. But only those two games... I guess the others in the series are sold out, or not at this location...

(You can still find them at a local WalMarts...)


And that right there sums it all up... 

Toys R Us peaked as a company in 1994 when the founder, Charles Lazarus, resigned as CEO. They were by far the top children's toy retailer, knocking off Children's Palace and Lionel Playworld in recent years. Kay Bee Toys and FAO Schwartz would also be swallowed up by the Geoffrey in the 2000's...


Just 4 years later, WalMarts overtook them as the biggest toy retailer in the U.S.


WalMarts could sell toys (and virtually everything else) at a massive discount in comparison to a big box specialty store. The simplest explanation for this is volume. WalMarts grew to a point where it could buy inventory at such a discount compared to smaller chains, which would then pass that savings along to customers.


Few can compete with this...


Of course once their competition was obliterated, WalMarts would typically boost their prices back up, to boost their profits back up. You don't keep a loss leader going once the reason for that loss isn't there anymore...

But the vast underhanded business practices of WalMarts is another story for another time...

Although I would welcome writing a story about the chain-wide demise of WalMarts...


In 2000, Toys R Us abandoned their company-run website, making a deal with Amazon to be the online distributor of their inventory.


Company executives miscalculated the effects of online sales, and chose not to keep their online presence strong. Before they gave it up, customers often cited Toys R Us website as being too difficult to browse multiple items and even to simply check out (which couldn't be done in less than 5 steps).


Rather than fix any of that, they gave all that profit to Amazon in exchange for them running it. Amazon was in it's infancy itself, and was more than happy to take on such a high profile account to build it's reputation.


For me, Toys R Us was rarely a factor in toy buying. As a kid, my toys came mainly from Target, KMart, Holiday Village and Zayre before that. Toys R Us' peak coincided with my collection moving onto other things instead of toys.


Today, liquidators filled this Toys R Us with surplus identical toys. Which is the lazy way of running a liquidation sale. Instead of sending 20 pieces that are the same to each store to sell, why not send a variety to each store in the chain, and you'd likely make more on the liquidation sale. No one is going to buy 10 of the same Power Rangers Mega Ninja Zords, but they may buy 1 or even 2, then buy more of that toy line if it was made available...


What aisles were left were stocked with duplicate merchandise...


Going in, I was hoping to score some bargain Transformers or maybe baseball collectables. But even the baseball figures were too many duplicates...


Maybe I don't want 12 Johnny Peralta action figures, but I know that I don't even want one...


Back in 1993, Topps and Toys R Us partnered up to make a really nice 100 card boxed set, patterned after the Stadium Club Dome sets.


It featured 100 of the top young players and prospects in the game, and came packaged in a plastic container that was shaped like a brick and mortar Toys R Us store.

Topps and Toys R Us continued to partner up over the years. In recent years, Topps produced purple variant of their base sets that were exclusively distributed at Toys R Us stores.

I never bought any, but they are highly desired on the secondary market.


But of course, there were no cards at all left at Toys R Us closeout sales...


If I was still collecting Hot Wheels, I would have snapped this piece up quickly! That thing looks awesome!


Making the toy cars of my youth seem weak in comparison...


Pretty much anything licensed was picked clean.


A look at the WWE licensed shelves show that if you were a fan of Dash & Dawson, you could buy at least 30 sets of that tag team!


But not one single set of The Freebirds from the AWA were available...

Had they been, I would have gladly paid full price!


Around this point in my Toys R Surveillance mission, I needed to visit a more desolate corner of the store to use the facilities. Which were still open and not being closed out.


Damn greasy napkins...


The Women's room told you where to put stuff that you didn't want, while the men's room reminded you that the store was closing in less than two weeks.


Men's room was clean, and luckily they hadn't sold all of the toilet paper... 


As I mentioned, the restrooms were in a desolate corner of Toys R Us, which I deducted was the heart of Babies R Us, by the signs for now emptied aisles.


Sure, a few things remained, but not much in the Babies area.

Babies R Us kept the franchise afloat into the early 2000's, but the ill-fated Kids R Us spinoff was folded in 2003.


While some stand alone Babies R Us stores were made, most were combined with existing Toys R Us Stores by 2004.


During much of 2006, as the recession hit the North American economy hard, Toys R Us cut thousands of jobs and closed hundreds of stores. The chain also combined all remaining Toys R Us and Babies R Us into the same stores.


The Toys R Us store in Littleton, CO store was among those closed in 2006. Later that year, it became a Best Buy.

Located adjacent to a popular shopping mall (Southwest Plaza), I visited a few times before it closed, as I was living just over 2 miles away. It was a close side mission during Del Taco visits...


There, I found the sequel to the most insanely messed up game I've ever played... 


And The Hart Foundation!


But for Toys R Us, the writing on the wall was growing ironic. 


The owners were looking to sell the entire company in 2004, Babies R and all... 


At that time, multiple private equity firms were looking for a quick profit making deal, and Toys R Us still had some financial appeal.


The most appealing part of Toys R Us was it's real estate portfolio. 1500 Stores worldwide with 900 in the US, valued at over $2.3 billion.


Like predators ready to sink their claws into fresh meat, a conglomeration of private equity firms took over the company in a $7.5 billion leveraged buyout in 2005. Saddling the company with additional outside debt in the transaction.


The new owners financed the company by putting 500 of it's stores into two corporations that acted as the company's landlords. Allowing Toys R Us to sell another $2 billion in debt, backed by it's own rent payments.


After reading whatever I could find on the sale multiple times, none of it still made any sense to me. 

I still have zero clue how any of this worked. 

It's no wonder I'm poor. 


Much like the motto Jake Paul lives by, it's just everyday (business)... 

I have no idea who Jake Paul is...

Bro!

The next 13 years saw a non-stop revolving door of top executives try to right the plastic ship, but Toys R Us was existing strictly on borrowed money.


$725 million in debt payments were due in 2009, so Toys R Us took out more loans, backed by mortgages on over 100 properties to repay it. Some of the mortgages were second, or even third...


By 2008, the United States was also in a major economic recession. That coupled with the changing retail landscape of internet sales and fewer people shopping at big box specialty stores. It was clear that Toys R Us was in big trouble. That it would have great difficulty in trying to free itself from...


A planned fundraising stock offering was supposed to take place in the fall of 2010. The company hoped to raise $800 million. But after many delays over the next few years, that IPO never happened.


All told, Toys R Us was paying out interest of $400 million on $5 billion in debt, annually, for over 10 years. Under that burden, they company had next to no shot at becoming profitable again.


X-Mess holiday sales usually amounted to around 40% of Toys R Us annual revenue. Those numbers fell drastically in 2012, with profits falling by 75% for the year.


In the Summer of 2017, 40% of the companies' vendors refused to even ship products without advance and past cash payments made. With the holiday season coming, the timing was disastrous.


Toys R Us filed for Chapter 11 bankruptcy in September 2017, just as a $1.2 billion dollar debt payment was coming due, with another $668 million due in early 2018.


Toys R Us promised all of it's cash as collateral for a $3.1 billion dollar operating loan from three major US banks. The loan was written as debtor-in-possession financing. Which would provide Toys R Us enough money to satisfy their vendors, in order to operate through the 2017 holiday season...

But if the company closed, these banks would get to pick the carcass first.


Holiday 2017 season sales were 15% lower than 2016, and Toys R Us was still about $250 million short of what it needed in order to continue operating through the 2018 holiday season.

Not counting debt re-payments...



A plan was floated to close 180 stores, and shut down Babies R Us completely, but none of their financial backers would sign on with this plan. 


Another plan was floated by corporate that would have kept half of the US stores open... 

But even the simplest of machines could tell you what was going to happen next...


Fail... F... A... I... L...

The creditors simply decided they'd get a much better return if the company was liquidated and the assets sold off. Toys R Us was killing off it's Baby..

R Us...


On March 9, 2018, Bloomberg News reported that Toys R Us would cease it's US operations, and close all 735 remaining stores, by the end of June, 2018.


Toys R Us would have to sell $2 billion worth of inventory at closeout prices, then take bids on it's brand names, mascot (Geoffrey the Giraffe) trademarks and intellectual property, store leases, office equipment and then lay off all 30,000 employees.


International stores were not part of the bankruptcy, though stores in the United Kingdom were liquidated after no one stepped up to buy them. An Irish company bought the european stores, and a Toronto based investment firm bought the Canadian division for $237 million.

Toys R Us stores in the Asian markets are still involved in a bidding process for their assets.


I left Toys R Us without buying a thing that night. 

There was nothing to buy... Anything worth buying was sold months ago...

My souvenir of the mortally wounded Giraffe were these pictures, which I converted into this story. 


I left Toys R Us feeling sad. 

While it was never a very big part of my life, it was very significant to a whole lot of other people. From those who shopped there as children (and adults), to those 30,000 plus people who are losing their jobs.

The executives with faceless nameless private equity firm will all land on their feet, as will all of the bankers and investors who tried to make even more money through questionable practices involving Toys R Us.

They will all float safely down on pillows of cash. 

It's never those who make the decisions that actually suffer from them...


A week after the announcement was made to close Toys R Us, Charles Lazarus died at his home. 

He had been ill and was reportedly unaware the company had been folded.

******

A massive Four Baggers thanks goes to bloomberg.com for dropping the knowledge I needed to write this story.


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