There’s been a lot of coverage, a lot of rumour and a lot of misdirection as the Toys R Us saga has unfolded, and James Zahn, via Toyworld Mag, delves into the various elements of the collapse.
I have written so much about the Toys “R” Us situation in recent months, but there are some very important factors that I still think much of the general public does not understand. These points need to be made very clear:
Toys “R” Us did not collapse because “toys don’t sell.”
Toys “R” Us did not collapse because of Amazon, Walmart, or online shopping.
Toys “R” Us did not collapse because “kids want iPads, tablets or devices.”
Toys “R” Us did not collapse because of “millennial parents.”
Toys “R” Us did not collapse because of “high prices.”
Toys “R” Us did not collapse because of a “lack of vendor support” (as CEO David Brandon claimed)
Those arguments only go so far as they’re quickly dismantled by the fact that Toys “R” Us moved over $11B in toys in 2016, a number comparable to other recent years. Brandon, who was taking Court-approved bonuses while his company was sinking, must’ve forgotten the fact that vendors were still shipping product to his stores on unsecured credit not only through the holiday season, but as recently as this month. There goes that “lack of support” comment.
Toys “R” Us DID collapse because it was buried under over $5B in debt that it was strapped with during a leveraged buyout in 2005 in which Bain Captial Partners, KKR and Vornado Realty Trust put down a little of their own money and financed the rest. In the years since, TRU has been spending over $400M a year just in interest payments on their loans. Without that debt, TRU could’ve invested in their stores to modernize them and bring the “magic” back to the experience, all while maintaining fair pricing. Thanks to the equity crew, TRU could never invest in themselves.
