Back in the old days (the 80’s and 90’s), no place was better for kids than Toys R’ Us. If you wanted to get all of the latest toys, then that was the place to go. When compared to other toy stores, Toys R’ Us was at the top of the heap, and it looked like they would reign supreme for a long time.
Then the internet came and changed everything.
Now that you can order toys from just about anywhere, it’s kind of redundant to have a whole store dedicated to nothing else. As Amazon increases its outreach to take over the world, former giants like Toys R’ Us are struggling to compete. In fact, the brand has recently filed for Chapter 11 Bankruptcy.
In this infographic, you can get a more detailed look at how a mega-corporation like Toys R’ Us fell from such heights, but we’re going to give you the TL;DR version of it right now. Strap on your nostalgia goggles, we’re going for a ride.
Back in 1948, founder Charles P. Lazarus opened a children’s store. Although it didn’t sell toys initially, it didn’t take long for that to happen. Eventually, the toys became the highlight of the store, and he changed it to Toys R’ Us in 1957.
By 1978, the company was large enough that it went public, allowing people to buy stock. Shortly after that, it expanded into two new stores: Babies R’ Us and Kids R’ Us.
After that, the company got a surge of new business and rapidly expanded. As we mentioned, the golden age for Toys R’ Us was during the 1980’s and 1990’s. It wasn’t until 2005 that things changed, and the company’s downfall began.
In 2005, two companies named Bain Capital and KKR bought Toys R’ Us by leveraging debt. Although the details of the acquisition are somewhat complicated, the best way to describe it is how you buy a house on a mortgage.
Essentially, they ran up a huge debt bill, assuming that sales and income were going to continue to stay steady for the next few decades. Unfortunately, that was not going to be the case.
Just to put things in perspective, in 2004, the company’s debt was about 1.8 billion. After the deal went through, that number ballooned to 5.5 billion.
The idea behind doing things this way was to reduce costs and increase debt repayments so that the new owners could cash out their shares and earn more money for themselves. However, that plan was dependent on the idea that sales wouldn’t take a hit, which they did.
Even though the amount of debt has been reduced over the years, there just isn’t enough money coming in to make the payments to their creditors. By 2016, Toys R’ Us just had a few million to reinvest, which is far below what a company that size should have.
As a result, Toys R’ Us had to file for Chapter 11 protection. This happens when a business wants to stay solvent by restructuring its debt to make it easier to pay off. Although it won’t necessarily solve the brand’s problems, it can help stop the bleeding for now.
Unfortunately, the leveraged buyout of Toys R’ Us happened at an inopportune time. With online shopping slowly starting to dominate the retail industry, it was inevitable that it would start to claim specialty stores like Toys R’ Us.
Even with a robust online presence, and the distinction of America’s #1 toy store, the brand is still lagging behind retail giants like Walmart and Amazon. These two companies are eating into their market share by offering a wide selection of toys at more competitive prices.
What it all comes down to is convenience. Even though Toys R’ Us has online ordering of its own, it still only sells toys. Thus, if people want to shop for other things as well, they have to visit multiple stores or sites to do it.
Both Amazon and Walmart offer a better deal because they are one-stop shopping for all of your needs. Rather than going to different places to find everything on your list, you can take care of everything at once. Customers are just more likely to buy toys from a retailer that also offers other things for them, too.
Not only that, but Amazon and Walmart have better budgets for marketing, which enables them to cut down Toys R’ Us’ market share even further. Since the brand is so focused on debt repayment, it can’t invest in new ads or campaigns to stay competitive.
Although filing for Chapter 11 Bankruptcy is going to help in the short term, Toys R’ Us has to make fundamental changes to its business model if it’s going to survive into the future.
An excellent model to copy would be Best Buy, which had a similar debt issue in the past. To combat its indebtedness, the company focused on three things:
Ultimately, it will rely on some clever ingenuity for Toys R’ Us to pull through this set of challenges. Without making some drastic adjustments to its bottom line, it won’t be able to make it to the next decade.
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