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Toys 'R' Us caught between online and brick-and-mortar shoppers

A recent article published by Reuters told the story of a New York family that drove to a Toys 'R' Us store in Wallkill, New York, so that their children could enjoy the store's "play lab." Play labs are but one tactic the giant toy retailer is using in an effort to restructure its debt and emerge from its Chapter 11 bankruptcy proceeding. Unfortunately, the company's creditors may attempt to throw a wrench into these plans.

Play labs are specially designed areas in a number of Toys 'R' Us stores that allow children to play with toys that are for sale in the store. They are also one several innovations the chain is using in an attempt to reclaim its customers. Unfortunately, Toys 'R' Us may be up against fundamental and unfavorable changes in the toy market. The most obvious such trend is the increase in popularity of the internet as compared with traditional toy stores. The internet now accounts for about 20% of toy sales, where traditional toy stores have declined to a 15% share.

Toys 'R' Us has also announced plans to devote about $400 million of its $3.1 billion in bankruptcy financing to sprucing up its stores and hiring more experienced and better paid staff. The company's creditors are aware of these plans, and they are considering bringing a motion before the bankruptcy court to disallow the expenditures as excessive.

Toys 'R' Us is hoping to submit its plan of reorganization sometime in 2018. People who are knowledgeable about the toy industry do not look with untampered optimism on these plans. Some industry observers see Toys 'R' Us innovations as possible revolutionizing the toy market; other see Toys 'R' Us disappearing in two years.

Source: Reuters, "Toys 'R' Us plans new playdate with U.S. shoppers," Jessica DiNapoli, Melissa Fares, Dec. 21, 2017

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