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 year-end shopping season.
The company that once dominated toy sales in the U.S. 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 U.S., including Babies R Us stores.
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.
In the New York City area, the closings will include the store in Union Square in Manhattan, as well as several in Queens and Long Island, according to USA Today.
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 Wednesday that tough decisions are required to save Toys R Us.
He acknowledged “operational missteps” during the critical year-end 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 year-end 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 U.S., 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 four-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.”
She said the next closest Toys R Us location is in King of Prussia, and it’s not well maintained. And she doesn’t like to shop for toys on Amazon.com because she likes to get a reaction from her son before she buys.
Toys R Us reigned supreme in the 1980s and early 1990s, when it was one of the first of the “category killers”— a store totally devoted to one thing: toys. Its scale gave it leverage with toy sellers and it disrupted general merchandise stores and mom-and-pop shops. Children sang along with commercials featuring the mascot, Geoffrey the giraffe.
Now Toys R Us and other category killers like the now-defunct Sports Authority, Borders and Circuit City, are being upended by Amazon and online shopping. More than three dozen retailers sought bankruptcy protection last year, due in large part to radical shifts in where people shop, and what they buy.
GlobalData Retail estimates that nearly 14 percent of toy sales were made online in 2016, more than double the level five years ago.
Jonathan Cordell, the father of an eight-month-old boy, said he does a lot of price comparisons online, jumping back and forth between Babies R Us and Amazon. But he likes to buy baby clothes at Babies R Us in Queens’ College Point section, which is on the list of stores to be closed.
“I usually take advantage of the price matching. I could find clothing at 50 percent off. You can’t find that on Amazon,” he said.
Toys R Us has been hurt by the shift to mobile devices taking up more play time. Some toy makers have struggled as well, with talk last year about the possibility of a merger between Mattel and Hasbro, the nation’s largest toy makers.
Wissink estimates that Toys R Us accounts for about 11 percent of Mattel’s annual sales and about 9 percent of Hasbro’s annual volume.
Silver said that the relationships between Toys R Us and toy makers have been frayed as the company has given bonuses to executives while suppliers are waiting to get paid.
“The toy industry needs Toys R Us to succeed,” said Silver. “But they can’t afford to have another year like 2017.”