Toys R Us is bankrupt, but what does it really mean for our kids?

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As a toy inventor, the BBC news headline:  “Toys R Us Files For Bankruptcy in US” was quite a shock.  Toys R Us in the USA is one of my best clients so naturally I was alarmed to hear they are facing bankruptcy.

However, I started to dig a little deeper and the future is not so gloomy as I first thought.  It is actually quite rosy.

The Toys R Us website is still very much up and running and makes fairly light news of the otherwise, damning bankruptcy situation.  It simply states “At Toys R Us we are undertaking a financial restructuring to ensure the iconic Toys R Us and Babies R Us brands live on for many generations.”

Restructuring is the key word here.  In US bankruptcy law, Chapter 11 Bankruptcy allows for restructuring compared to a Chapter 7 bankruptcy which triggers liquidation.

Who would want a company employing 64,000 people across 1,600 stores to go into liquidation, without some kind of fight?  If you are a creditor, wouldn’t you want to give them a fighting chance of paying you what is owed?  Sure, the company is facing difficulties but let’s work it out.

That’s my approach.

When I woke up, I thought that bankruptcy implied imminent closing of all their stores.  If I had read the headline before bedtime, I would be having night sweats over lost revenue over the loss of a great client.

Across the USA, Toys R Us and Babies R Us stores continue to operate normally.  For example, my toys are still available in the same stores as they were before the filed for bankruptcy.  We make the sporty activity gym that can be seen in the image above – bottom left.

In the UK, Toys R Us and Babies R Us stores are not affected by the filing for bankruptcy.  Significantly, the European stores are licenced stores, and not part of the Chapter 11 filing.

What went wrong?

Toys R Us is still the huge iconic toy store with a brand name that is recognised world wide.  Don’t underestimate the value of a brand.

Toys R Us has been quick to criticise online retailers.  Amazon and Walmart have clearly stolen a lot of trade.  For this, Toys R Us have to take part of the blame.

There is an equally valid argument that the playing field is not level.  Online retailers are criticised for selling toys at radically discounted, loss making prices in order to capture business from the established companies such as Toys R Us.  Their profitable lines easily compensate for the loss making ventures.

Whilst I am sure this is true, it is not the full story.  In the UK, The Entertainer reported its seventh consecutive year of growth and reached a pre-tax profit of £6.9m in 2016.  What is more, the Entertainer is shut on one of the busiest shopping days, Sunday, as the boss is a devout Christian.

There has also been criticism of the role of the consortium of investors who bought the company in 2005.  The investors pumped significant volumes of cash into the business financed largely by debt which all needs paying off.

There are reports of management trouble and excessive spending on growth.  There are rumours of excessive spending on advisory, consultancy and management firms, on international expansion and the creation of side-by-side Toys “R” Us and Babies “R” Us.

What is next for Toys R Us?

Toys R Us remains an iconic brand.  It is not going to go away.

The Chapter 11 Bankruptcy allows the management of Toys R Us to restructure.  There is speculation how the firm may restructure.  First and foremost, there is a lot of debt to sort out.  Let the accountants sort it out.

There is also the longer term question how to drive customers back into their stores.  How to win back customers from the online retailers?

My observation is that retail has changed significantly over the past 30 years.  The concept of driving out of town to a specialist store no longer appeals to customers when you can pop into town to The Entertainer or to your local supermarket.

The future – the Toys R Us experience

My prediction is that Toys R Us will focus increasingly on the “experience”.  They will want to make Toys R Us a destination again, somewhere you want to visit at the weekend with your kids.  The focus will be on the experience, not the store front.  It will be all about getting customers in the doors again.

I have a vision of Toys R Us “experience” stores which have Lego play grounds for kids to build enormous sculptures in. There will be soft play areas for the toddlers to play in whilst parent watch demonstrations of the latest parenting gadgets.  The latest kid’s movies will premier in their stores with the opportunity to buy the latest merchandise in the same store after the movie ends.  Older kids will be able to test out the latest nerf guns in a reconstruction of their favourite movie set.  Meanwhile, there will be relaxing coffee areas for parents to enjoy a speciality roast, whilst the kids are blowing ginormous bubbles from the biggest bubble blowing machine you have ever seen.  After school clubs will set up in stores, in which kids play musical instruments, learn to ride a bike or test the best app for your kid to learn maths.

The scope for improvement is immense.  Let’s not think of this as the demise of Toys R Us.  This is a massive opportunity.

 

Nick Farnsworth is a toy inventor for the Little Sport Star – sports theme baby toys.

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