Sadness among shoppers with Toys R Us demise
The demise of Toys R Us will have a ripple effect on everything from toy makers to consumers to landlords. Not to mention the children who love it and adults who grew up with it.
The 70-year-old retailer is headed toward shuttering its U.S. operations, jeopardizing the jobs of some 30,000 employees while spelling the end for a chain known to generations of children and parents for its sprawling stores and Geoffrey the giraffe mascot.
The closing of the company’s 740 U.S. stores over the coming months – including 20 in Michigan – will finalize the downfall of the chain that succumbed to heavy debt and relentless trends that undercut its business, from online shopping to mobile games. And it will force toy makers and landlords who depended on the chain to scramble for alternatives.
CEO David Brandon told employees Wednesday the company’s plan is to liquidate all of its U.S. stores, according to an audio recording of the meeting obtained by the Associated Press.
The news saddened Andrew Chambers of Brownstown Township, who has a newborn and a 7-year-old son. They visit the Toys R Us store on Eureka Road in Southgate every few weeks.
“He loves touching and seeing everything... but now we’ll probably do our shopping on Amazon or Walmart, which doesn’t have as big of a selection,” Chambers said Thursday. “With all the video games now, there’s less of a demand for a one-dimensional toy store.”
Trish Steven was shopping at the Madison Heights store on Thursday. She said her kids – ages 7, 9 and 11 – beg to go to the Toys R Us when they get good marks in school.
“They love the store and I used it as a bribe for good grades,” said Steven, who lives in Madison Heights. “We don’t come often, but when we did they’d each get a toy and then we’d go down the street to the Krispy Kreme.”
Steven intends to stock up on Christmas toys during closing sales.
Stanley Jackson, from Detroit, was at the Madison Heights store to buy a My Little Pony movie-theater set for his daughter’s seventh birthday.
“How can Toys R Us go out of business?” he asked. “But I guess with electronics and stuff now...”
When the chain filed for Chapter 11 bankruptcy protection last fall, saddled with $5 billion in debt that hurt its attempts to compete as shoppers moved to Amazon and huge chains like Walmart, it pledged to stay open.
But Brandon told employees its sales performance during the holiday season was “devastating,” as nervous customers and vendors shied away. That made lenders more skittish about investing in the company. In January, it announced plans to close about 180 stores over the next couple of months, leaving it with a little more than 700 stores.
The company’s troubles have affected toy makers Mattel and Hasbro, which are big suppliers to the chain. But the likely liquidation will have a bigger impact on smaller toy makers that rely more on the chain for sales. Many have been trying to diversify in recent months as they fretted about the chain’s survival.
Toys R Us has been hurt by the shift to mobile devices taking up more play time. But steep sales declines over the holidays and thereafter were the deciding factor, said Jim Silver, who is editor-in-chief of toy review site TTPM.com.
The company didn’t do enough to emphasize that it was reorganizing but not going out of business, Silver said. That misperception led customers to its stores because they didn’t think they would be able to return gifts.
Now, the $11 billion in sales still happening at Toys R Us each year will disperse to other retailers like Amazon and discounters, analysts say. Other chains, seeing that Toys R Us was vulnerable, got more aggressive. J.C. Penney opened toy sections last fall in all 875 stores. Target and Walmart have been expanding their toy selections. Even Party City is building up its toy offerings.
“Amazon may pick up the dollars, but won’t deliver the experience needed for a toy retailer to survive and thrive in today’s market,” said Marc Rosenberg, a toy marketing executive.
Toys R Us had dominated the toy store business in the 1980s and early 1990s, when it was one of the first of the “category killers” – a store totally devoted to one thing. Its scale gave it leverage with toy sellers and it disrupted general merchandise stores and mom-and-pop shops. Children sang along with commercials about “the biggest toy store there is.”
But the company lost ground to discounters like Target and Walmart, and then to Amazon, as even nostalgic parents sought deals elsewhere. GlobalData Retail estimates that nearly 14 percent of toy sales were made online in 2016, more than double the level five years ago. Toys R Us still has hundreds of stores, and analysts estimate it still sells about 20 percent of the toys bought in the United States.
It wasn’t able to compete with a growing Amazon: The toy seller said in bankruptcy filings that Amazon’s low prices were hard to match. And it said its Babies R Us chain lost customers to the online retailer’s convenient subscription service, which let parents receive diapers and baby formula at their doorstep automatically. Toys R Us blamed its “old technology” for not offering its own subscriptions.
But the company’s biggest albatross was that it struggled with massive 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. Weak sales prevented them from taking the company public again. With such debt levels, Toys R Us did not have the financial flexibility to invest in its business. The company closed its flagship store in Manhattan’s Times Square, a huge tourist destination that featured its own Ferris wheel, about two years ago.
In filing for bankruptcy protection last fall, Toys R Us pledged to make its stores more interactive. It added demonstrators for the holiday season to show people how toys work, and began opening Play Labs at 42 stores, areas where children can play with different items.
The Associated Press and Detroit News reporter Sarah Rahal contributed