Sales Woes of Toys R Us May Have Been Sign of What Was to Come

Toys R Us is trying to reorganise under bankruptcy leading into the holiday season. The company was observing overall sales decrease and those at established locations fall even more sharply as it was heading for a filing of Chapter 11.

Weaker sales showed the difficulty the retailer was having among more intense competition from businesses such as Walmart and Amazon that can offer products for lower prices. Toys R Us was already weakened by $5bn (£3.71bn) in debt.

The toy retailer that is also the owner of the Babies R Us chain states that for the three months that ended 29 July, sales decreased to $1.46bn from $1.56bn. Even more telling was the company’s same-store sales which is considered a key indicator of a retailer’s health. That figure plunged by 6.4% in the quarter.

In 2016, those sales edged up by 0.5%. Toys R Us stated that the same-store sales decrease was due to the softness in the Canadian and US markets. Domestically, same-store sales slipped by 6.8% from a year earlier, and in Canad, they dropped by 3.3%.

This month, Toys R Us, which operates around 1,600 stores, filed for Chapter 11 bankruptcy protection, as it is heading into the all-important holiday season, which makes up about 70% of annual toy sales. Toys R Us has said that it has received $3.1bn in new financing that will enable it to pay its suppliers and employees through the period.

Aside from the company’s sales woes, the Wayne, New Jersey, US-headquartered firm has has experienced a difficulty with debt since private-equity firms KKR & Co., Vornado Realty Trust, and Bain Capital took it private through a $6.6bn leveraged buyout in 2005.

The plan had been to take the company public. However, that never took place because of its weak financial performance. And the debt meant that Toys R Us could not invest in its business.