While there is a chance that a buyer might step in and rescue the failing retail chain, all signs point to going-out-of-business sales for former retail giant Toys R Us sometime in the near future.
Bloomberg News, citing unnamed sources, says a worse-than-expected holiday season and continued loss of market share to Amazon and other online retailers have thwarted the company’s attempts to bounce back after filing for Chapter 11 bankruptcy and receiving a $3.1 billion loan to finance its restructuring plan.
While the decision has no effect on Toys R Us’ foreign operations, which were not part of the bankruptcy, even those have fallen on rough times, according to Bloomberg.
USA Today, also citing unnamed sources, says Toys R Us officials are preparing to shift from a Chapter 11 bankruptcy to Chapter 7 and begin the process of liquidating all of its Toys R Us and Babies R Us stores in the United States.
Three hearings scheduled in U.S. Bankruptcy Court to provide updates on the company’s restructuring process have been canceled over the last several days, indicating Toys R Us may have run into problems, according to USA Today.
The beginning of the downfall of a company that was the darling of the business world in the 1980s and 1990s came after it was purchased in a leveraged buyout in 2005, which saddled the business with billions of dollars in debt from which it has never been able to emerge.
Though Toys R Us was able to refinance the debt on numerous occasions, its shrinking sales due to online competition never allowed it to return to its former status.
The seriousness of the Toys R Us restructuring plan was questioned after a November 15 filing in U.S. Bankruptcy Court for the Eastern District of Virginia, in which the company asked for approval of $32 million in bonuses for CEO David Brandon and 16 other members of his management team at a time when Toys R Us had just reported $164 million in losses for the previous quarter, an Axios report revealed.
Brandon asked for $12 million with the remaining $20 million to be split among management team members.
The reason the $32 million in incentives is needed, according to the court filing, was “to ensure these key members of the debtor’s management team are properly incentivized to meet the significant challenges upon us.”
In the wake of the publication of articles on Toys R Us’ liquidation plans, stock prices for toy manufacturing companies Hasbro and Mattel dipped.
The difficulties faced by Toys R Us have become a common story in the retail world, with many prominent retail store chains, including Macy’s, Sears, and J.C. Penney, announcing store closures in recent months.