Toys R Us files for bankruptcy in US as online shopping grows

Filing is latest blow to brick-and-mortar retail industry reeling from online competition

Toys ‘R’ Us, the once-dominant specialty retailer and ultimate toy land for a generation of post-war baby boomers, filed for bankruptcy thanks to a crushing debt load from a previous buyout and relentless competition from warehouse and online retailers.

The bankruptcy filing is the latest blow to a brick-and-mortar retail industry reeling from store closures, sluggish mall traffic and the gravitational pull of Amazon. com, which has revolutionised the way people consume with affordable online offerings and global home delivery service.

A dozen-plus major retailers have filed for creditor protection this year, including Payless, Gymboree and Perfumania Holdings, all of which are using the Chapter 11 process to close underperforming stores and expand online operations.

The shakeout is also reverberating across American malls and shopping districts. More than 10 per cent of US retail space, or nearly 1 billion square feet, may need to be closed, converted to other uses or renegotiated for lower rent in coming years, according to data provided to Bloomberg by CoStar Group.

The troubles at Toys 'R' Us come as retailers and suppliers ramp up for the all-important holiday shopping season. In an emailed statement, Mattel said, "As one of our most important retail partners, we are committed to supporting Toys 'R' Us and its management team as they work through this process, particularly as we approach the holiday season".

The bankruptcy filing by the company also may have global implications, especially for Chinese toy manufacturers.

Some 38 per cent of the company’s revenue came from overseas markets in the latest fiscal year.

"It's a loss for the long-term benefit of the entire industry," said Lun Leung, chairman of Hong Kong-based Lung Cheong Group, a toy supplier for Hasbro. He said Toys 'R' Us accounted for less than 5 per cent of the group's sales.

Crushing Debt

The company listed debt and assets of more than $1 billion each in Chapter 11 documents submitted on Monday at the US bankruptcy court in Richmond, Virginia. Prior to filing, the chain secured more than $3 billion in financing from lenders including a JPMorgan Chase and Co led bank syndicate and certain existing lenders to fund operations while it restructures, according to a company statement. The funding is subject to court approval.

The company didn’t announce plans to close stores, and said its locations across the globe would continue normal operations

"Like any retailer, decisions about any future store closings - and openings - will continue to be made based on what makes the best sense for the business," Michael Freitag, a spokesman for Toys 'R' Us, said in an email.

Much of the toy merchant's debt is the legacy of a $7.5 billion leveraged buyout in 2005 in which Bain Capital, KKR and Co and Vornado Realty Trust loaded the company with debt to take it private.

Since then, the Wayne, New Jersey-based chain has struggled to dig itself out.

- Bloomberg