Toys R Us Faces Survival Threats as Debt Rises and Revenue Slides
Toys R Us could become the next big American retailer to end up in bankruptcy court. The well-known toy retailer has recently hired a law firm to help it restructure its debt. One of the restructuring options under consideration is bankruptcy protection.
The retailer has major debt repayment deadlines coming up before the end of this year. Some $400.0 million of outstanding debt is due by the end of this year.
The restructuring effort may enable the company to get relief from repayment and buy the company some more time. Bankruptcy may allow the company to exit store leases for locations that are no longer profitable.
Toys R Us was a public company until it went private in 2005. The company has since then taken on significant debt to expand its footprint, but many of its stores have been underperforming amid slumping sales. Declining revenue has pushed the company’s bottom line down into the red zone. In recent quarters, the company has been making losses, which are continuing to widen.
Toys R Us management acknowledges that the retailer failed to adapt to the fast-changing retail environment. The company was too late to capitalize on the consumer trend toward online shopping, as it continued to witness declining foot traffic to its stores.
Meanwhile, competition from big box retailers like Wal-Mart Stores Inc, Best Buy Co Inc, and Target Corporation—as well as online retailer Amazon.com, Inc.—stiffened. All of these companies started offering toys at cutthroat pricing, both online and in-store.
Toys R Us has been trying to beat competition by offering promotional pricing, an effort which cut into its profits and forced the company to bear losses. Meanwhile, its debt has continued to pile up, with the company’s total long-term debt hitting the $5.0 billion mark by end of April.
With a growing number of American retailers going bankrupt at a record pace, it won’t be a surprise if Toys R Us announces something similar soon.
“Toys R Us restructuring its debt, bankruptcy filing is an option,” USA TODAY, September 6, 2017.