Toys R Us Files for Bankruptcy: Here’s What That Means

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Toys R Us Bankruptcy FilingWill a Bankrupt Toys R Us Change the Holiday Season?

Yesterday, retail toy giant Toys R Us filed for Chapter 11 bankruptcy protection in federal court. Citing increased competition in the rapidly-changing retail market and facing a $400 million debt payment by year’s end, this move appears to be a last-ditch effort to keep stores open. However, with the holiday shopping season merely weeks away, anxious shoppers are worried about what this all means.

Let’s take a minute to break down the filing and see what the experts have to say:

Understanding Retail Bankruptcy

Currently, Toys R Us faces some $5 billion in debt, $400 million of which is due by the end of 2017. With creditors losing patience and the most lucrative part of the retail year ahead, this bankruptcy filing actually serves to keep Toys R Us viable. In other words, by eliminating debt obligations, the company can keep stores open. And that is exactly what it plans to do.

In response to the filing last night, Toys R Us firmly stated that all of its 1,600 stores would remain open through holiday season. However, after that point is anyone’s guess. As Jeff Gliet, a bankruptcy lawyer, explained to USA Today, “bankruptcy may be the only solution that lets it shed excess stores” over time.

How Did Toys R Us Fall?

Like so many other brick and mortar retailers lately, Toys R Us faces a huge problem: they have too many stores, and those stores are too big. Like Sears, Macy’s, JC Penney, and more, the reality of the eCommerce age has left retailers with a large physical presence losing money.

Further, more and more stores have entered Toys R Us’s market. Walmart is and remains the biggest toy seller in the United States, and other multipurpose locations such as Target, TJ Maxx, and even drugstores offer similar items. Finally, with the explosion Amazon and other online-only retail options such as Jet and eBay, failure to stay relevant has cost Toys R Us dearly. That’s why, despite making massive changes to its own online platform over the summer, Toys R Us just cannot keep up.

What to Expect this Holiday Season at Toys R Us

With bankruptcy looming, many shoppers may rightly worry about Toys R Us’s ability to keep shelves stocked for the upcoming season. Indeed, some suppliers may be wary of working with the toy giant without further reassurances. On the flip side, however, the need to draw customers into its stores and onto its website may be a huge boon for deal seekers.

In fact, retail industry insiders were already expecting huge deals to pop up this holiday season as more physical stores fight to stay in the race. Now, with Toys R Us facing a reckoning come January 1, they are likely to slash prices and boost doorbusters even more than usual. As a result, other retailers, specifically physical ones like Target and Walmart, are likely to follow suit. We will watch these deals (and let you know about the best ones!) as they develop.

The Future of Toys R Us

Like any person of a certain age, I have a sort of nostalgic connection to places like Toys R Us. While those a generation or two older may see it as an evil corporation who pushed out small town toy retailers (it did, for the record), as a child in the 1980s, a trip to Toys R Us was like Christmas in any month of the year. There was simply no other place where all the commercials I saw on televisions and fantasies I played out in my head came to life more fully than at the toy store. And, while toy aisles in places like Target are equally fun, there is just something special – and nostalgic – about a whole store dedicated to children and play. To this day, taking my kids to Toys R Us is a sacred, if stressful act.

Now, with its future uncertain and more and more retailers moving to fully online models, it is tough to say what the future of toys or clothes or other items will be. The change that is upon us, however, is crystal clear and Toys R Us has some difficult decisions to make in that regard. Stores will most definitely close, and people will most definitely continue to increase their online buying habits. Whether or not there is a place for a retailer like Toys R Us in that landscape is yet-to-be-determined.

What do you think?