UK stores remain trading as normal.
Toys R Us, the iconic specialist toy retailer, yesterday filed for bankruptcy protection in the US and Canada. UK stores remain trading as normal.
The business faces a number of headwinds as it copes with c. $5 Bn of historic debt alongside what is a cyclical business model and increasing competition from online competitors such as Amazon. Operating close to 900 physical stores in the US is a costly affair!
Suppliers to the business have issued serious concerns and outside of bankruptcy protection were only prepared to offer limited credit. This is crucial time for the business as it enters into the Christmas trading window as it will need to ramp up stock levels to take advantage of the festive season. A retailer cannot afford to have empty shelves at this time.
In a scenario like this it is important to understand the immediate needs of the business and whether it is worth continuing in the short term. Clearly with Christmas around the corner, signifying the businesses busiest period, it makes sense to continue trading and sufficient financial support appears to be available to get the retailer through this period.
The Chapter 11 procedure will in all likelihood be used to protect the business through this time but it will be most interesting to see what happens following the Christmas period when cash levels are at their highest.
This could well be the beginning of the end.
Toys R Us was acquired by a private equity team back in 2005 and it is likely that the crown jewels in terms of assets will have long been sold off.
When dealing with any form of business restructuring you need to seek to address and resolve the root cause of the problem. In this instance, if the business is to survive then significant changes will be required, potentially meaning the closure of a number of non performing Toys R Us stores for good.
The Chapter 11 protection will allow the breathing space for this review to take place and any required changes to be implemented.
Watch this space!