NEW YORK－Toys R Us, a nostalgic favorite even as many shoppers moved to Amazon and huge chains like Walmart, plans to close up to 182 stores after struggling during the holiday season.
The company that once dominated toy sales in the United States has been operating under bankruptcy protection since last fall, when it filed for Chapter 11 under the weight of $5 billion in debt. Toys R Us operates about 900 stores in the US, including Babies R Us stores.
“I’m very sad about Toys R Us closing,” said Dana Gillis, who was shopping at the store in Highland Park, Illinois, on Wednesday.
“As a teacher, as a parent, any resources that I need, I can find online,” she added. “But I value so much being able to come to a real store like Toys R Us and be able to check out the product before I purchase.”
The store closings will begin in February and the majority of locations identified for closure, which include Babies R Us stores, will go dark by mid–April. At some other locations, Toys R Us and Babies R Us stores will be combined. The bankruptcy court still must sign off on the closings.
Toys R Us wouldn’t say how many jobs will be cut. It said some employees will be moved to other stores and those who cannot be will get severance. Chairman and CEO Dave Brandon said on Wednesday that tough decisions are required to save Toys R Us.
He acknowledged “operational missteps” during the critical holiday shopping season when shopping at its stores and online wasn’t as easy as it should have been.
“The actions we are taking are necessary to give us the best chance to emerge from our bankruptcy proceedings as a more viable and competitive company that will provide the level of service and experience you should expect,” he said in a letter to customers.
Fixing the store experience and giving shoppers more reason to buy is critical, said Jim Silver, editor-in-chief of TTPM.com, a toy review site.
Gerrick Johnson, an analyst at BMO Capital Markets, had estimated that holiday sales at the company’s North America stores were down more than 10 percent. He attributed much of the decline to people’s confusion around the bankruptcy filing and a fear of buying gifts at Toys R Us because they thought they wouldn’t be able to return them if needed. Johnson also blamed a weak marketing campaign and email promotions that didn’t create a sense of urgency.
Toys R Us has struggled with debt since private-equity firms Bain Capital, KKR& Co. and Vornado Realty Trust took it private in a $6.6 billion leveraged buyout in 2005.
The plan had been to take the company public again, but weak sales have prevented that from happening. With such debt levels, Toys R Us has not had the financial flexibility to invest in its business.
Meanwhile, other stores like Target have been increasing their assortment of toys. Toys R Us closed its flagship store in Manhattan’s Times Square, a huge tourist destination, about two years ago. While its sales numbers have been shrinking, Toys R Us still sells about 20 percent of the toys bought in the US, according to Stephanie Wissink, an analyst at Jefferies LLC.
Competitive pressures will force the company to examine all its stores, and more will likely be shuttered over the next year or two, Wissink said.
Moody’s lead retail analyst Charlie O’Shea says the closings will let Toys R Us “focus all of its operating efforts on only its best locations.”
Ryan McLaine, mother of a 4-year-old boy, is disappointed that her favorite Toys R Us store in Exton, Pennsylvania, was on the list of closures. “We would always like to reward him. It was always fun to take him to the big store to see what he would like,” she said. “Now, we have to figure out what to do next.”
Boosted by the China’s relaxation of the second-child policy, Toys R Us Inc’s joint venture in China has different strategy.
It has plans to open 10 new stores in the country during the upcoming National Day holiday, which starts on Oct 1.
The 10 stores, in major cities including Guangzhou, Shenzhen, Hangzhou and Chengdu, will bring the total number of stores of the toy retailer to 150.
Roy Sammartino, managing director of Toys R Us China, said their China retail business continues to perform well and believes the current business model is well accepted by the local consumers.
Sammartino said they will focus on tier one, two to three cities and will invest in the Chinese market through their online and offline platforms.
Toys R Us (Asia) Ltd is a joint venture 85 percent owned by Toys R Us Inc and 15 percent by Fung Retailing Ltd. Andre Javes, president of Toys R Us Asia Ltd, said the company is open for business and continues to serve its customers.
