Dive Brief:

• Amazon has been eyeing some Toys R Us locations as the e-commerce giant looks to expand its physical footprint and Toys R Us liquidates its own store base, Bloomberg reported Monday citing unnamed sources. An Amazon spokesperson declined to comment on the report and told Retail Dive in an email that "we don’t comment on rumors/speculation."
• Amazon doesn't want to maintain the Toys R Us brand at the stores, but rather the e-tailer would use them to showcase its Echo devices and Alexa voice platform, according to Bloomberg, which noted that "Amazon sees voice as the next interface for people to access technology ... and the benefits may be easier to demonstrate in a real-world setting."
• The report also noted that more stores — on top of those Amazon acquired with the Whole Foods buyout — would put more inventory near its shoppers, giving Amazon logistics benefits.

Dive Insight:

With one of the first big box "category killers" in free fall, Amazon might as well go window shopping at one of the largest retail fire sales in history.

Last week, the toy seller moved to liquidate its U.S. operations, after filing for Chapter 11 in September with the stated intention of restructuring its business to serve future generations of children. But the company fell behind Amazon and mass merchants in pricing during the holidays, alienated customers through operational mishaps, and ultimately came up woefully short during the most important holiday season of its life.

Falling far below of the sales targets attached to its bankruptcy loan, Toys R Us breached the loan's covenants. Attorneys for the retailer said in court papers that the company, without a new injection of capital, would be out of cash by May. Meanwhile, creditors have been pressing for liquidation as the most viable path to getting paid back, and efforts to find a buyer for Toys R Us came up short, attorneys said.

Without a buyer or financial savior, Toys R Us has no choice but to start winding down U.S. operations, as it did recently with its United Kingdom business. (The retailer's Asian business, on the other hand, is the subject of buyout talks with joint venture partners.)

Even as it begins shutting down domestic operations, the toy seller is hoping to salvage some 200 stores in the U.S., by attaching them to a deal with its Canadian unit. A group of toymakers led by MGA Entertainment is trying to put together a bid for the Canadian business and some fraction of Toys R Us' U.S. stores, Bloomberg reported last week.

While Toys R Us careens, Amazon shows no signs of slowing in its whiplash-inducing growth. The e-tailer is building out its cashierless Go stores and reportedly asserting itself over Whole Foods, to the dismay of some suppliers. Through these efforts, and the retailer's partnership with Kohl's, among other moves, it's clear Amazon understands it needs a brick-and-mortar game to keep growing.

Ironically — or ominously, to some — Toys R Us and Amazon once partnered to sell toys online. It did not end amicably. Toys R Us sued Amazon for allowing third-party sellers to compete against what was meant to be an exclusive arrangement. Amazon countersued, saying Toys R Us did not maintain appropriate inventory levels. They eventually settled.