Dive Brief:
- Toys R Us this week announced plans to close 26 of its stores in the United Kingdom in an effort to "reposition" its real estate portfolio in the area, according to a company press release. That represents more than 25% of the 90 stores in the region listed on its most recent 10-K. The toy retailer, which filed for Chapter 11 bankruptcy in September, said in a release that its U.K. unit employs more than 3,000 people, and the company would try to move staff at closed stores to other locations.
- The stores will stay open through the holiday sales period and begin closing in 2018, Toys R Us said. The company is seeking approval of the plan from its creditors, who will vote on it Dec. 21. Steve Knights, managing director of Toys R Us' U.K. unit, said in a statement that the company's newer, smaller, more interactive stores are "trading well," and the company's digital retail in the U.K. is growing, but Toys R Us' warehouse stores in the U.K. are losing money and "too big and expensive to run in the current retail environment."
- Meanwhile, in bankruptcy court, Toys R Us asked for more time to negotiate its reorganization plan. Attorneys for the retailer said in a document filed Tuesday that Toys R Us needed through July to file a plan because it has been focused on stabilizing its business and supply chain, after fear among its vendors created the financial spiral that sent Toys R Us into Chapter 11.
Dive Insight:
In what is becoming a sad but routine necessity for Toys R Us, the company tried to reassure its employees and customers around the world on Tuesday that the retailer is continuing business as normal.
The retailer said in a second release that the U.K. store closures and approval process "will not impact any Toys R Us entities or stakeholders outside the U.K., including employees, vendors and customers." It added that the company's "approximately 1,600 Toys R Us and Babies R Us stores around the world, including all stores in the U.K., are currently open for business and continuing to operate as usual."
Toys R Us CEO and Chairman Dave Brandon said in a statement, "We are confident that we are taking the right steps to ensure that the iconic Toys R Us and Babies R Us brands live on for many generations in the U.K. and around the world."
During the critical holiday season — where Toys R Us says it makes about 40% of its sales — the retailer needs to convince its customers as well as its creditors and suppliers that there is good reason for the continued existence of Toys R Us. Shortly after its bankruptcy, the retailer unveiled a rebranding and media campaign aimed at positioning the retailer as a place of physical experience and free play for kids.
Josh Sussberg, an attorney for the retailer with Kirkland & Ellis, told a judge in October that the company had brought its supply chain back in focus and had the vast majority of its top vendors shipping on normal trade terms again.
Perhaps more relevant to the retailer's long-run health, Sussberg added that the company's working "thesis" throughout the bankruptcy proceedings would be that Toys R Us is the only "toy showroom" of its reach. "You don't get this customer service at Walmart, you don't get this customer experience at Target, you certainly don't get this customer experience on your smartphone," he said.
As Sussberg pointed out in court in October, Toys R Us is competing with — and has been losing market share to — the mass merchants he mentioned, as well as Amazon, which stands to gain from the toy retailer's bankruptcy.
Those retailers can afford to heavily discount toys because they are just one of many products they sell and inessential to their bottom line, just one reason among several that Toys R Us has struggled in recent years. As one illustration: This Thanksgiving and Black Friday weekend saw Toys R Us suspend its holiday price matching program for the high-volume sales period.
