How a $6.6 billion buyout helped sink Toys R Us
By 2017 Toys R Us owed about $5 billion and was spending $400 million a year just servicing that debt, leaving little to modernise its stores against Amazon and Walmart. The debt traced back to a 2005 leveraged buyout, and within a year of bankruptcy every American store had closed.
It started with furniture. In April 1948, amid the postwar baby boom, Charles Lazarus opened Children's Supermart in Washington, D.C., selling cribs and other baby furniture. In June 1957 he opened a store in Rockville, Maryland devoted entirely to toys, and designed the logo himself, flipping one letter backwards so it looked as if a child had written it. Nationwide expansion followed in the 1970s, then Canada and Britain in the mid-1980s, and the chain rode every craze from Star Wars figures to Cabbage Patch Kids and Nintendo.
Pressure from Walmart and Target mounted, and in March 2005 Bain Capital, KKR and Vornado Realty Trust agreed to take the company private for $6.6 billion. A leveraged buyout loads the purchased company with the borrowing used to buy it. The chain kept trying new ideas, including staying open 87 hours straight before Christmas 2013 and hiring 45,000 seasonal workers, but it never posted another annual profit after 2013.
On September 18, 2017 it filed for Chapter 11 protection. Liquidation sales began in March 2018, and on June 29, 2018 the last American stores shut after 70 years. Fortune estimated that $4 billion in holiday toy sales was suddenly up for grabs. The profitable 82-store Canadian arm survived, sold to Fairfax Financial for about $234 million.
The brand refused to die. Its lenders kept the name rather than auction it, and in 2019 two small American stores opened, only to close in January 2021 during the pandemic. That March, WHP Global bought control of Tru Kids, the brand's owner, and a Macy's deal put Toys R Us shops inside 400 department stores, alongside a flagship at New Jersey's American Dream complex.
Source: Toys "R" Us
