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Toys “R” Us Considering Bankruptcy Protection

Law Office of Ronald V. De Caprio Sept. 14, 2017

The changing retail markets in the United States have affected both large and small merchandisers. As big online retailers such as Amazon gain larger and larger shares of various markets, their competitors are facing dire financial futures. One of the most recognizable chains, Toys “R” Us, has already abandoned its flagship store in New York City and is now reported to be considering bankruptcy because of reduced sales and a heavy debt load.

The toy retailer has long dominated toy sales, and its strength was reflected in its purchase by three private equity firms in 2005. However, in the last decade, both Target and Walmart have expanded their toy sections and have taken customers from the company. Toys “R” Us first showed signs of trouble ahead when it closed its Times Square store in 2015. Now, it has reportedly retained a major law firm, Kirkland & Ellis, to assist it in coping with the twin problems of dwindling sales and enormous debt.

Toys “R” Us must pay about $400 million in debt that comes due in 2018. It also owes about $5 billion in long term debt. While the company is hopeful that it can secure sufficient re-financing to hold off creditors, knowledgeable observers have said that retaining Kirkland & Ellis means that the company is giving serious consideration to filing bankruptcy. Toys “R” Us may become part of the wave of bankruptcies that is washing through retail markets. Some retailers have filed bankruptcy, while others have closed thousands of stored and laid off tens of thousands of workers.

Retailers who are facing intense completion from big box or on-line retailers may find themselves in a situation similar to the woes facing Toys “R” Us. The services of a capable bankruptcy attorney may be very helpful in evaluating bankruptcy and financial restructuring as a means of preserving the business.