UPDATE: Toys “R” Us has filed for bankruptcy protection in the U.S. and Canada. Read the latest updates here.
Toys “R” Us has been in the financial press since last week, and for all the wrong reasons.
According to a Sept. 6 report by CNBC, the U.S. toy chain has hired restructuring lawyers at Kirkland & Ellis to help restructure $400 million in debt the company will have to repay in 2018. Among the possible options, the retailer is allegedly considering bankruptcy.
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The news has prompted ratings agency S&P Global to downgrade the company’s credit rating by one notch to “CCC+” from “B-” and warn of another possible downgrade.
What does this mean for Canadians who are counting on the retail giant to fulfill various Santa’s lists as the holiday season approaches?
Toys “R” Us has not confirmed it is considering a corporate restructuring
Asked by Global News to comment on the CNBC report, Toys “R” Us said it is “evaluating a range of alternatives to address our 2018 debt maturities.”
“We expect to provide an update about these activities, as well as the many initiatives underway to provide an outstanding customer experience in our global retail locations and webstore during the holiday season, during our second quarter earnings call on September 26,” the company also said in an email statement.
Even if Toys “R” Us were to enter corporate restructuring, it wouldn’t necessarily cease to exist. For example, Payless ShoeSource, another struggling retailer, recently emerged from bankruptcy after slashing its U.S. store count.
S&P has said that while the chance of a broad restructuring has increased, that isn’t the agency’s current lead scenario.
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This isn’t supposed to affect holiday shopping
The first tranche of 2018 debt securities doesn’t come due until May 2018, which should give the retailer some breathing room. Also, Toys “R” Us will likely be loath to take any steps that could compromise the key holiday season.
Solid Christmas sales will be essential for the company to be able to address its upcoming debt, S&P noted.
If anything, addressing its financial woes ahead of the holidays should reassure key suppliers like Mattel and Hasbro about the company’s long-term viability, helping to ensure the retailers can keep its shelves stocked during the crucial shopping period, CNBC noted.
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But future store closures are possible, including in Canada
There is no question that Toys “R” Us is struggling, said Robert Levy, president of Toronto-based BrandSpark International.
The toy chain faces formidable competition from Amazon, which has become a lead player in the toy and baby needs department. More and more parents are subscribing to the online retailer’s Amazon Family service, which offers 20 per cent off and free shipping on regular deliveries of diapers, along with other family-centric offers and recommendations.
Penny-pinching parents are also increasingly turning to Walmart for deals on anything from baby essentials to blockbuster toys.
And both Amazon and Walmart are wading into voice-activated shopping, which will likely be particularly appealing to parents of very small children, said Levy.
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Moms and dads fumbling with baby bottles and diaper changes will likely be quick to embrace the option of restocking on things like nappies and baby wipes hands-free, by simply asking digital assistants like Amazon’s Alexa to place a new order, he added.
Among such heated competition, Toys “R” Us’ current store presence across Canada “might be difficult to sustain,” said Levy.
The retailer currently operates nearly 870 stores in the United States and nearly 70 locations in Canada, according to its website.
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Still, Toys “R” Us “still has some strengths and opportunities” in Canada, said Levy.
The company ranked No. 1 as the brick-and-mortar toy retailer most trusted by Canadians, according to a recent survey by Levy’s BrandSpark International. And although Amazon has taken the lead as far as e-commerce goes, Toys “R” Us is holding up at No.2 in that category, too.
To survive, Toys “R” Us will need to step up its game when it comes to online shopping, users’ reviews and delivery costs, according to Levy. But it still has a chance.
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