The fierce competition between Amazon.com and Wal-Mart are driving retailers out of business. More than a dozen significant retail chains, including Perfumania Inc, rue21 Inc, BCBG Max Azria Global Holdings LLC, Gymboree Corp, and Payless Holdings LLC have filed for bankruptcy in 2017.
The largest toy store chain in the United States, Toys ‘R’ Us Inc, has filed for Chapter 11, bankruptcy protection in what is read to be the latest sign that the retail industry is not managing to cope up with the rigors of discount chains and online shopping.
The Chapter 11 filing is among the largest ever by a specialty retailer and casts a huge cloud of doubt over the future of its nearly 1600 stores and 64,000 employees.
The development assumes significant since Toys ‘R’ Us has been gearing up for the holiday shopping season, which typically accounts for the bulk of its sales.
“While today’s decision does not necessarily mean it is game over for Toys ‘R’ Us, it brings to a close a turbulent chapter in the iconic company’s history,” said Neil Saunders, managing director of GlobalData Retail.
Toys ‘R’ Us was almost forced into this choice when it received a commitment for more than $3 billion in debtor-in-possession financing, from lenders which include a JPMorgan-led bank syndicate, said the Wayne, New Jersey-based company in a statement.
Toys ‘R’ Us also operates the Babies ‘R’ Us chain.
The financing, subject to court approval, reassures its suppliers they will get paid for their Lego building blocks and Barbie dolls that are being shipped for the holiday season.
“We expect that the financial constraints that have held us back will be addressed in a lasting and effective way,” said Dave Brandon, the company’s Chief Executive.
“Together with our investors, our objective is to work with our debt holders and other creditors to restructure the $5 billion of long-term debt on our balance sheet.”
Like its U.S. counterpart, its Canadian unit, will also parallelly seek protection under the Companies’ Creditors Arrangement Act (CCAA) in the Ontario Superior Court of Justice, said Toys ‘R’ Us in a statement.
As for its operations outside of the U.S. and Canada, which includes 255 licensed stores and joint venture partnerships in Asia, they are separate entities and are thus not part of the bankruptcy proceedings and are open for business, said Toys ‘R’ Us.
The company has piled up $6.6 billion in debt, from a 2005 buyout which was led by KKR & Co LP and Bain Capital LP along with Vornado Realty Trust, a real estate investment trust.
Toys ‘R’ Us also has bonds that are maturing next year. As per Thomson Reuters data, these have already lost half of their value this month, with investors growing wary of a possible bankruptcy.
In a move that was aimed at tapping holiday shoppers, the company had opened a temporary store in New York City’s Times Square this year – two years since it was forced to close up in its flagship store due to high rents, barely a block away.
“Vendors have cut them off based upon the rumors of the filing which has not been refuted,” said Jay Indyke, a bankruptcy attorney with the Cooley law firm.
As per Bankruptcydata.com, a research firm, Toys ‘R’ Us has assets worth $6.9 billion, as per its recent annual report.
Major retailers, including, Sears Holdings Corp and Macy’s Inc have been forced to close hundreds of stores in various locations as they struggle to compete with brick and mortar giant Wal-Mart Stores Inc and the world’s largest online retailer Amazon.com Inc.
According to Kloster Trading Corp, a consulting firm, Toys ‘R’ Us is the second-largest toy seller in the U.S., right behind Amazon.
“What they have going for them is they are the last major player in their market,” said David Berliner, a partner and restructuring specialist with BDO Consulting. “The vendors don’t want to see them fail, so I think they have a good opportunity to survive.”
Toys ‘R’ Us filed the petition in the U.S. Bankruptcy Court for the Eastern District of Virginia in Richmond, Virginia.