Toys ‘R’ Us has filed for bankruptcy protection in the US and Canada as it attempts to restructure its debts.
The retailer was once a dominant player in the US toy market, but has struggled against larger rivals such as Amazon, Walmart and Target.
The move casts a shadow over the future of the company’s nearly 1,600 stores and 64,000 employees.
The firm’s operations in Australia and Europe and a joint venture in Asia are not part of the bankruptcy proceedings.
Not child’s play
The bankruptcy filing is more evidence that traditional retailers are struggling in the US, as online retailers continue to capture market share.
GlobalData Retail estimates that in 2016 about 13.7% of all toy sales were made online, up from 6.5% five years ago.
“The past decade has seen a dramatic change in the domestic toy market with new channels, increased competition, and new technology all having a deleterious impact on the sector and traditional toy stores. Unfortunately, Toys ‘R’ Us has not responded effectively to these challenges,” said Neil Saunders, the GlobalData Retail managing director.
Toys ‘R’ Us said the majority of its stores around the world remained profitable, and would continue to operate as normal through the holiday period, which is when they do most of their business.
But the company is also looking to online sales to secure its future, with recently launched web stores for its products.
Toys ‘R’ Us wants to use the bankruptcy process to restructure and make the company viable over the long term.
Enormous debt levels are its most immediate problem.
Various lenders, including a JPMorgan-led bank syndicate and some of the company’s existing lenders, have committed more than $3bn in new financing to turn the company around.
“A combination of high debt and severe structural changes in the industry created a toxic mix against which Toys ‘R’ Us had little choice but to restructure and try to put itself on a firmer footing,” said Mr Saunders.
However, the company says the new financing will improve the company’s financial health and support its operations during the court-supervised bankruptcy process.
“Our objective is to work with our debt holders and other creditors to restructure the $5bn of long-term debt on our balance sheet, which will provide us with greater financial flexibility to invest in our business,” said chief executive Dave Brandon.