Toys R Us, the national toy chain that has been around since the 1950s, announced Monday night that the company had filed for bankruptcy, just ahead of the holiday shopping season.
In a statement, the company said its roughly 1,600 stores, which include Babies R Us, will remain open. But the move might also make customers and manufacturers less confident, keeping some shoppers away during the holiday season and causing some toy manufacturers to become more cautious with their deliveries.
In the statement, in which it declared “the dawn of a new era at Toys R Us,” the retailer said its stores will function as before, with its customer programs, sales, and promotions running uninterrupted and its stores fully stocked.
The company said it would use the bankruptcy protection to restructure its $5 billion in debt and put into place new long-term strategies to cope with a challenging world for traditional retail models. According to the New York Times, the company had been saddled with a substantial portion of that debt for years, and in 2005, private equity firms and a real estate firm bought it off the public market for $6 billion. It was left with a considerable amount of debt, and the company was staring down a $400 million debt payment next year.
The rise of e-commerce has struck a blow to most retailers, but Toys R Us also has suffered from competition with other big-box retailers such as Walmart and Target, which can drive down the price of toys. Some big lenders have agreed to provide $3 billion in financing to kick-start some of the company’s restructuring. In order to stay afloat, the company will have to convince investors that it knows what it needs to survive the existential threats to traditional retail stores.
According to USA Today, the store has plans to renegotiate its leases for cheaper rent, convert some of its existing properties into side-by-side Toys R Us and Babies R Us brands, and improve its recently launched online store. But bankruptcy will also allow it to shutter some of its less profitable stores. In the meantime, it will also need to smooth over any wrinkles with suppliers who might have become skittish in the wake of the filing.
Other retailers that have filed bankruptcy this year include Gymboree, Payless ShoeSource, and Rue21.
