Toys “R” Us’ Cost-Cutting Measures: 200 More Closings Due to Massive Debt & Disappointing Holiday Sales

Toys "R" Us Cost-Cutting Measures
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The number of Toys “R” Us, Inc. store closings in 2018 has increased by 200. According to The Wall Street Journal, the store closures will be followed by Toys “R” Us corporate layoffs at its headquarters in Wayne, New Jersey. Moreover, the recent Toys “R” Us holiday season sales were quite disappointing as other online and big-box retailers succeeded in grabbing customer attention. In addition to the 200 store closings, as part of Toys “R” Us cost-cutting measures, approximately 170 Toys “R” Us stores are holding going-out-of-business sales.

The closures will lead to a reduction of more than 50% in Toys “R” Us stores across the U.S., from nearly 880 last year to roughly 400 stores. In September 2017, Toys “R” Us’s debt of $5.0 billion forced the toy retailer to file for bankruptcy. Since then, bankruptcy experts have been predicting the toy retailer’s apocalypse. They say that in order to sustain itself in the current market, the company would have to shrink its store count to less than 200.

Some Babies “R” Us stores are on the verge of shutting down by mid-April. At some places, the company will be merging its Toys “R” Us and Babies “R” Us stores.

In regards to the store closures, this is what Chairman and CEO Dave Brandon had to say: “The actions we are taking are necessary to give us the best chance to emerge from our bankruptcy proceedings as a more viable and competitive company that will provide the level of service and experience you should expect.”

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Toys “R” Us’s Massive Debt & Disappointing Holiday Sales

The Toys “R” Us bankruptcy—caused by its massive debt, which was followed by disappointing holiday sales—added more woes for the company.

The deals and discounts offered by online retailers like Amazon.com, Inc. (NASDAQ:AMZN), and big-box retailers like Walmart Inc (NYSE:WMT) and Target Corporation (NYSE:TGT) attracted customers. Meanwhile, in spite of discounting 10% more of its products than it did last year, Toys “R” Us was not able to reel in consumers. Toys “R” Us’s holiday season sales were down about 15% compared to the previous year. This decline in Toys “R” Us sales is the primary reason for these store closings in 2018.

Since the Toys “R” Us bankruptcy filing, some underperforming stores were targeted for closures. That number is now increasing.

In the annual North American International Toy Fair held in New York City this week, manufacturers said that Toys “R” Us had disappointed the industry by the way it is handling its bankruptcy; the store failed to correct customer impressions that it is shuttering all its stores. Toys “R” Us had told the bankruptcy court that it plans to get out of bankruptcy by the fall and that it is developing a plan, but there are currently no signs of it.

Meanwhile, toys don’t appeal to children nowadays; they prefer using modern gadgets for entertainment. Gerrick Johnson, an equity analyst at BMO Capital Markets, said, “What’s the advantage of having a store [devoted to one thing] unless you have something to go to that place for. Toys doesn’t do it anymore.”

Gaining a profit is becoming more difficult for brick-and-mortar retailers and opting to invest in e-commerce is no simple task either; building an efficient online platform needs a lot of capital. In addition, shipping adds an extra cost. Will the Toys “R” Us cost-cutting measure of store closings help it come out of bankruptcy? Only time can answer this question.

Sources

Toys ‘R’ Us Plans to Close Another 200 Stores,” The Wall Street Journal, February 21, 2018.

Report: Toys ‘R’ Us to close another 200 stores,” WMUR Channel 9,February 22, 2018.

Toys R Us’ poor holiday sales cast doubts on its future,” CNBC, January 30, 2018.

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