Toys R Us calls in restructuring advisors
Toys R Us has appointed restructuring advisors as it struggles under a debt burden, suggesting it may be about to trim its store network.
Neil Saunders, MD of GlobalData Retail, says while the decision is not necessarily a sign of imminent bankruptcy, it is an indication the company is in “a very uncomfortable financial position”.
“For a robust retailer, debt payments can be challenging. For a retailer struggling to generate sales growth while, at the same time, trying to invest to remain relevant – it can be the difference between success and failure.”
Saunders says Toys R Us faces a pincer movement.
“Firstly, it suffers competition from online and physical generalists who happily discount toys to drive customer traffic and sales for stores and websites. Toys R Us has little choice but to price match on some items but has no other categories with which it can balance out eroded margins. Where it fails to price match, it loses sales.
“Secondly, Toys R Us has lost out in the digital space. Although recent digital investments have been made, the website and general e-commerce proposition are still below par. By our calculations, Toys R Us continues to lose online market share in toys.”
A further complication for the toy giant is that it operates large and expensive stores.
“These are increasingly unsuited to what consumers want and expect, and they are steadily becoming less productive and efficient,” says Saunders.
“Against this backdrop, Toys R Us has to contend with the debt it accumulated as part of the leveraged buyout. In our view, this is an example of private equity damaging retailers by not running them as commercial trading entities but as ATMs.”
Toys R Us in Asia is operated as a joint venture between the US parent and Fung Retailing. In April, it consolidated its operations in the region by merging the 160-strong Toys R Us Japan chain into the JV, which is 85 per cent owned by Toys R Us.