Toys ‘R’ Us Explores Bankruptcy Filing

With the holiday season around the corner, Toys 'R' Us attempts to stymy its growing debt amidst increased competition from big box retailers and e-commerce.

GLOBAL–The largest pure play toy retailer in the world, Toys ‘R’ Us, has hired a law firm to help restructure its significant debt and is exploring filing for bankruptcy as one possible solution to its financial woes.

Toys ‘R’ Us currently has close to $400 million in debt that will be due in 2018, and has hired restructuring advisors from the law firm Kirkland & Ellis to assess the situation, according to CNBC, which first reported the news.

The news of a potential restructuring comes on the cusp of the holiday season, when Toys ‘R’ Us makes the majority of its sales. In fact, the retailer just released its annual Holiday Hot Toy list, which you can read about later today on www.licensemag.com and in tomorrow’s e-news.

Bankruptcy is not a foregone conclusion at this point, with refinancing and restructuring of the debt also viable options that the retailer will likely explore.

The company is already working with the financial advisory firm Lazard and successfully refinanced some of its debt just a year ago. However, with the roster of retail bankruptcies growing, many lenders are becoming less accommodating.

"As we previously discussed on our first quarter earnings call, Toys ‘R’ Us is evaluating a range of alternatives to address our 2018 debt maturities, which may include the possibility of obtaining additional financing," Toys R Us spokeswoman Amy von Walter said in a statement on Wednesday. "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."

According to LIMA’s recent Global Licensing Survey, the toy sector is the second largest segment in brand licensing (after apparel), accounting for 13 percent of global retail sales of licensed merchandise, and totaling more than $35 billion in 2016.

With 880 domestic locations and 1,025 storefronts internationally, Toys ‘R’ Us and Babies ‘R’ Us are power players in the kids’ space, but in recent years the company has faced intense competition from big box retailers like Walmart and Target and e-commerce giant Amazon.

The first sign of real trouble was back in 2015 when Toys ‘R’ Us closed its destination flagship in Times Square to save money on rent. Just last month though, the retailer announced plans for a 35,000-square-foot pop-up in the same neighborhood for the holiday season.

Following a disappointing 2016 holiday season, where same store sales dropped 3.4 percent, the retailer reported a net loss of $164 million in the first fiscal quarter of 2017. Toys ‘R’ Us will release is second quarter earnings on Sept. 26.

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