Marc Benedict B.

Talamayan 2015-03672 Feb 19, 2018

Toys “R” Us

Toys “R” Us has filed for bankruptcy on March 15, 2018, closing 735 stores, leaving 33,000

people without jobs and wrapping up their 70-year run as a top international toy retailing store. Primary

causes of the said bankruptcy involves a huge amount of debt and failing to catch up with their

competitors.

There are many speculations as to what really caused the store’s downfall but most analysts think

that the company’s huge debt was the primary reason as the company was saddled with billions of dollars

in debt. The company had about $5 billion in debt and was spending about $400 million a year just to

service the debt. This debt stopped management from making the necessary investments in their stores

such as raising the wages of their employees and adding playrooms where kids could try out toys and

spaces for birthday parties to improve customer service. Most of their toy suppliers also cancelled or

reduced their shipments as they feared that the company will not be able to pay them back.

This debt started when Toys “R” Us was purchased in a leveraged buyout by three companies in

2005. This new management’s plan was to bundle together money from investors and buy Toys “R” Us,

fix them up by cutting costs and increasing sales, and then take it public to cash out. They accumulated a

lot of debt as to prepare them to spend a lot in investing to increase sales. What they did not foresee is that

this amount of debt prevented them from making the right investments like improving their website,

increasing payroll or including playrooms for kids as they were busy paying back their loans.

With their amount of debt, their customer service deteriorated. This was a problem especially

when online rivals like Amazon sprouted in the industry as it offered lower prices and quick shipping to

the market. There was also the rise of big box retailers like Walmart and Target.

Management control played a role in their bankruptcy as the company’s debt was a big gamble

made by the management. They could have used their accounting information and analyzed their trend of

sales, growth rates, fixed and variable costs to determine if they can withstand the extra amount of

leverage they incur for the company.

Sources:
 “Amazon Didn't Kill Toys 'R' Us. Here's What Did.” CNNMoney, Cable News Network, money.cnn.com/2018/03/15/news/companies/toys-r-
us-closing-blame/index.html.
 Business Radio. “The Demise of Toys R Us: What Went Wrong.” Knowledge@Wharton, knowledge.wharton.upenn.edu/article/the-demise-of-
toys-r-us/.
Marc Benedict B. Talamayan 2015-03672 Feb 19, 2018

Sources:
 “Amazon Didn't Kill Toys 'R' Us. Here's What Did.” CNNMoney, Cable News Network, money.cnn.com/2018/03/15/news/companies/toys-r-
us-closing-blame/index.html.
 Business Radio. “The Demise of Toys R Us: What Went Wrong.” Knowledge@Wharton, knowledge.wharton.upenn.edu/article/the-demise-of-
toys-r-us/.