Toys 'R' Us Cancels Bankruptcy Auction, Brand May Be Brought Back To Life
Nothing pleased childhood me more than a trip to Toys “R” Us. There was magic in browsing row upon row of shelves stuffed with He-Man and Transformers and ThunderCats action figures.
Yet as I got older, I noticed a troubling trend: Floor space dedicated to the kinds of toys I’d grow up with started to shrink.
Entire sections got taken over by high-margin video game consoles. Then the stores slowly seemed to slump into shabbiness.
So it didn’t exactly surprise me when Toys “R” Us filed for bankruptcy. But you know what does surprise me? The fact that it may be coming back.
According to a court filing from the company this week, Toys “R” Us’ top lenders have decided to halt their bankruptcy action. You may wonder exactly why.
Well, according to Reuters, “The bids were not superior to the plan to revive the brand as it did not offer ‘probable economic recovery’ to creditors as well as benefits to stakeholders.” In other words, liquidating the company didn’t make as much sense as reviving it.
Bloomberg said that the new, reorganized company will still have all of its old licensing agreements. However, that doesn’t mean you’re likely to see a Toys “R” Us location pop up on your corner any time soon.
Major toy companies such as Hasbro and Mattel have found other places to sell their wares. What’s more, the timing for a Toys “R” Us rebirth isn’t exactly great.
“The company did generate operating profits, and without debt, its profitability would be easier to maintain,” said Seth R. Freeman of GlassRatner Advisory & Capital Group. “Still, the timing of this move means the new company misses the critical holiday season, in which 34 percent of Toys ‘R’ Us merchandise is typically sold.”
Indeed, a high debt load was part of the reason the company foundered in the first place. CBS News said that the rise of online retailers certainly hurt Toys “R” Us.
After all, it’s easier to order items from the comfort of your computer during nap time than to drag a posse of wiggly kids through a store. Yet that wasn’t the only reason for its failure.
A number of private-equity firms purchased the company in 2005 and immediately racked up debt. That was supposed to “make the stores a better place to shop and work.”
However, it simply left Toys “R” Us unable to compete in the online space. It also meant the company had to focus on refinancing as its interest charges ramped up, dealing with money matters rather than its basic business.
“It’s a limbo contest here,” Moody’s analyst Charlie O’Shea said right after the bankruptcy was announced. “At some point, the bar gets too low and you can’t walk under it.”
That all could change now, though. Toys “R” Us and Babies “R” Us have room to grow internationally, and those stores will generate much needed royalties.
I’m still holding out hope to see Geoffrey the Giraffe make an appearance at the store that once stood a few miles from my home. This time, though, I’ll have my own kids to guide through those glorious aisles.
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