Last September, America’s favorite childhood store Toys ‘R’ Us filed for bankruptcy and after the company failed to generate enough profit during the holiday season, it finally made the heartbreaking announcement that all Toys ‘R’ Us in the U.S. and U.K. will shut down, costing more than 33,000 employees their jobs.
The news was first reported by Washington Post on Wednesday and according to the publication, Toys ‘R’ Us is expected to close all of its 800 franchises in the U.S. as well as the remaining 75 locations in the U.K.
However, the remaining 82 stores in the Canada will remain open. The announcement was a huge turning point in the toy industry since most consumers will now have to turn to other retailers like Target, Walmart and Amazon to purchase toys, whereas the manufacturers and suppliers for Toys ‘R’ Us will also need to look for other clients and platforms to sell their products.
In a dwindling market, Toys ‘R’ Us was still considered a major market shareholder, claiming over 15 per cent of toy sales in the U.S. in 2017. According to CNBC reports, after the retailer shuts down completely, the diehard Toys ‘R’ Us fans will not turn to other manufacturers. Instead, the total toy sales across the country are expected to drop by 10 to 15 per cent.
The millennials were hit hard by the news that one of the country’s most popular childhood store, where many had spent countless hours as kids browsing the aisles of never-ending supply of fascinating toys, was now shutting down forever.
Retail: A Struggling Industry
But Toys ‘R’ Us isn’t the only retailer that is struggling in the growing age of online shopping. Most stores around the country are closing their doors as consumers turn to e-tail giants like Amazon and eBay to shop. But competition from bigger players in the industry isn’t the only reason why this toy retailer ran out of business – most of the company’s ill fate was self-inflicted.
One of the biggest problems which eventually drove Toys ‘R’ Us into bankruptcy was the accumulation of millions of dollars in debt which was getting in the way of growth and investment. High interest rates on the debt meant that the retailer had little to no profit left over to invest back in the business, and hence, it ran out of business. The company fueling the childhood of American kids for 70 years now, but it seems like the next generation will not be able to experience the same joy.
A Case of Bankruptcy
The CEO of Toys ‘R’ Us, David Brandon, also admitted after filing for bankruptcy last year that the company has been unable to keep up with its competitors in various aspects including the conditions of its stores, innovation in its toy line and expansion on online platforms. The company’s issue with debt dates back to 2005 when Toys ‘R’ Us’ was downgraded to junk bond status, well before Amazon became a major threat to retail industry.
Around the time the toy store went private, the company was facing competition from retail giants like Walmart which were taking Toys ‘R’ Us’ market share by featuring toy manufacturers like Mattle and Hasbro. Both toymakers have sold more than $1 billion worth of products in Walmart, whereas sales in Toys ‘R’ Us have dwarfed to less than half of the amount.
A Sad Ending
Even though Toys ‘R’ Us has tried to increase its market share by selling toys to Target as well as its competitor Amazon, much of the profit received by the retailer has gone into paying back its debts. After the company filed for bankruptcy in 2017, its financial reports revealed that it had accumulated more than $5 billion in debt which was costing $400 million a year in interest. The company’s financial condition got worse with time until it didn’t even have enough money to pay its employees or invest in its stores.
After filing for bankruptcy, the CEO of Toys ‘R’ Us hoped that the process would finally leave his company with enough money to invest in the expansion of its stores as well as offer better salary and incentives to the employees, but this never happened and the chain finally decided to shut down all stores in the U.S. and U.K. completely.