Toys "R" Us may file for bankruptcy as early as this week. The toy retailer which has multiple stores around the country has struggled to continue growing its business since a buyout contributed to an increase in its debt more than a decade ago.
Toys "R" Us serves as one of the three largest customers for Mattel and Hasbro joining Wal-Mart Stores Inc and Target Corp. After the news broke, shares of both companies fell, with the upcoming holiday shopping season approaching.
Sources at CNBC who are familiar with the matter say that Toys "R" Us has tapped the services of restructuring lawyers at Kirkland & Ellis to help them manage their $400 million debt which is due next year. The move apparently will help the company to restructure its debt, providing Toys "R" Us the financial flexibility it wants to invest in its business to continue operations. It would simplify the firm's capital structure from its current one due to being owned by three private equity firms: Kohlberg Kravis Roberts, Bain Capital Partners, and real estate investment trust Vornado Realty Trust. This, in turn, would allow the retailer to regroup and possibly try other means to rebrand itself to cope with changes in the retailing industry.
The current situation is familiar to traditional retailers in the last few years. Many brick-and-mortar retail stores have shut down due to poor sales as more consumers turn to various online-based retailers like Amazon. Department stores like JCPenney, Macy's, Sears, and Kmart have al gone through the same difficult situation.
Within its own realm, the toy business is also facing its own distinct set of problems with children increasingly choosing things like tablets, video games, and other electronic gadgets for their entertainment than actual toys, like dolls, play sets, and action figures .The crunch has been felt by manufacturers of these toys, too, as LEGO recently announced plans to lay off eight percent of its workforce this fall, while Mattel has seen its stock fall over the past few years.
It is important to note, however, that the bankruptcy filing is not yet set in stone as Toys "R" Us would have to consider the ramifications of this move, especially with the upcoming holiday shopping season where a huge chunk of their annual revenue.
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