To those saying Toys R Us was doomed because of toys going digital or anything like that: not so fast.
> A year later the company was taken private by KKR, Bain Capital and real estate firm Vornado. The $6.6 billion purchase left it with $5.3 billion in debt secured by its assets and it never really recovered.
Maybe the physicial toys business is totally screwed, but this isn't evidence of that. It's evidence of a company being loaded down with debt and drowning under it.
Ah, the smoking gun. This is what happened to Maplin as well.
In both cases the underlying business might be failing, but this kind of debt-encumbering buyout purchase usually results in a transfer of money from both what's left in the business and also the (bank) creditors to the capital firms.
Going private allows a company to focus less on shareholder value (its legal first obligation as a traded company save for a legally defendable company charter that counters this in any way, which is rarer than it should be). That theoretically allows it to focus on growth or market entrenchment before profits, and take risks otherwise you wouldn't be able to take without risks of lawsuits.
It allows more freedom in restructuring and financial business decisions. The downside to that is when a vulture capitals like Bain or Ichan comes along, their motives are to extract as much profit from the 'asset' as possible for themselves regardless of the outcome to the business.
It stands in start contrast to venture capital firms that actually care about success. its usually obvious which one 'investors' are. If they're willing to put up money and take risks with you at the start, they're venture. If they're coming along after you're successful but struggling with a 'grand plan' to restructure and improve your business if you accept their money (and hand over way more control than you should), they're vulture.
All of that is just my observations of course. I'm open to counter arguments.
The reason is obvious: it’s hard to predict over any non-trivial time in the future, so there’s a broad deference to business judgement. In the case of Toys-R-Us, for example, if they’d been a public company at the time that argument could simply be that lower returns to shareholders now was critical to the long-term health of the business. People who disagreed could sell their shares or attempt to find enough like minded shareholders to replace the leadership but nobody could say their view is unambiguously correct and so the law stays out of it.
I don’t understand you’re hostility to what you call vulture capitals.
If the assets of a company are worth more than the business as a going concern, shouldn’t the assets be liquidated or repurposed for more effective purposes?
Depends on what "worth more" means. From a purely monetary standpoint liquidation that might be true. But giving VCs who are likely already rich more money vs. taking away peoples jobs isn't always the best way to "repurpose" money.
Presumably they do something with that wealth like invest it in a more profitable company or one with better prospects. If the company is unprofitable with their resources they’re destroying wealth which doesn’t serve the economy or society.
But the company was profitable before the VCs "restructured" it to basically steal (legally) everything they could. That's how the Vulture Capitalists work, there are other comments detailing this. Just because you can make money doesn't mean you should.
Is lining up pockets of third-parties a "more effective purpose"? Also, it seems to me that your computer could be used more effectively if it was a part of my scientific computing platform. Can I take it now?
You can buy it from me, which is what venture capitalists do. You can buy it from me and use it as collateral against a loan provided by a bank. I don’t see anything wrong with this.
That’s not a good comparison. What they’re doing is taking out loans against the business’ future value, buying it, stripping all of the assets and charging large mismanagement fees, and then letting it go bankrupt so other people pick up the costs. There’s not really a market where I could take a distributed computing loan against your computer, put the CPU into a different system, and default on the loan.
I honestly don’t see how this works, are you saying the banks are taking a massive loss on this venture? If so, wouldn’t the banks rationally avoid making loans to companies acquired by vultures, since they would always lose money to them? Who are the individuals taking a massive loss?
I’m asking basically why anyone would loan money to Toys R Us after it was acquired by corporate raiders.
The "lining of pockets" is deployed as investments in other companies. It isn't stuffed into a mattress. The richest people in our society live off an infinitesimally small amount of their wealth. The lion's share is deployed as investment (company stock, bonds, etc). It makes some sense to entrust this discretion over resources to people who have demonstrated an ability to manage resources at scale.
The people in question routinely bankrupt companies as a part of their method of operation. How is that possibly demonstrating an ability to manage resources at scale?
Yes, another disastrous private equity takeover. Debt servicing and management fees to the private equity funds take so much money out of the company that there is little left for innovation or tactical missteps.
Sometimes you will see that private equity only comes in when the company is in trouble anyway but I don't think Toys 'R Us was in the bad of shape when Bain and KKR showed up.
Toys R Us wasn't doing so well before the leveraged buy out either. Declining retail firms seem to turn to leveraged buyouts as a way to gain capital to give it one last big push, and then wind down in 5-10 years. Without the buyout, they would probably slowly dwindle over 20 years.
They usually do well for two reasons. First, the debt is on the books of the company they take over, not the private equity firm. Second, once they have control of the company they charge it 'management fees' for the executives and consultants they assign to run the firm.
They’re also free to loot assets: e.g. one popular technique is to transfer things like real estate and then have the former owner rent its stores back. At the end, they have that property to sell with none of the obligations.
In Fargo season three [mild spoilers] they portray this kind of hostile takeover, albeit rather more dramatically. It's a big twist at the end of the story (for those not already aware) when it turns out what the villains were doing in this regard was not actually illegal, if done properly.
What I'd like to know is did those firms make money (by leaving the lender holding the bag) or did they lose money (the money they spent to buy the company)?
Sears also seems to be headed down the same path, and I have the same question there.
I wonder if the capital structure of a business determines whether it continues to operate. If the debt-holders thought they could maximize value by keep the stores open, they would. Instead they have decided that liquidation maximizes value. If there were no debt, equity holders might still decide that being bought out by a company that could better use the buildings would maximize value.
By far the best toy store in our hometown is a 30-yr old store that sells mainly wooden toys, board games, kites and nice dolls. They've survived and even improved in recent years, while the big toy stores merge and get less numerous. That's awesome and I happily applaud being part of that as a customer.
Every play toy should last multiple children as a rule. We don't take that to the extreme as parents, but the basic rule is sound. Even children like it that their cousins play with the same toys they've played with when younger. Buy good stuff. Share. Bye bye Toys R Us.
Does ToysRUs sell bad quality toys? My mom always bought us name brand toys and they were all excellent, we got Ghost Busters, Jurassic Park, Power Rangers, Action Man. All got years and years of play from both me and my little brother. Don't they also sell Lego, Playmobil and Barbie? I hardly think toy quality has to do with their problems. I think the answer is just 'Amazon', as it is to most of the world's retail industry.
I don't think wood is a very suitable material to make children's toys with, but to each his own.
My rant was more against the whole cheap plastic toy industry. The big chains definitively sell more cheap stuff (daresay shit) than my eco-self would like. But you're right: Legos, Playmobil and indeed Barbies (my girl is a few weeks old, so yet to start on that avenue) are all very durable plastic toys and a large staple of what Toys R Us and other big toy stores sell. I agree with the other commenters that Amazon and Alibaba online and local discounters locally only serve to enhance the get-plastics-for-nearly-free market in toys.
An example: The metal miniature cars of the 80s still survive to this day. The plastic miniature cars, even those with metal tops, of the 10s get ruined by my boys in 24-48 hours. I don't even think they play like little monsters. A few good falls and it's gone. Then I get to toss it away and I really cringe. I blame toy stores for that, but that's totally naive.
> My rant was more against the whole cheap plastic toy industry.
Honestly, I don't have a problem with cheap, plastic toys.
This is something my wife & I don't see eye-to-eye on. She favors things made from wood, tend to be more expensive, etc. I personally don't care. At this age, kids are hard on toys. Their change and they might play with a toy for 5 minutes & the never again. All the more reason for something cheap & inexpensive.
But ... your child and your childs' child will inherit our planet. Not saying your reasoning isn't economically sound, but the external effects of all that plastic are clearly not in the price.
> I don't think wood is a very suitable material to make children's toys with, but to each his own.
I grew up with Brio railway[1]. I still remember the vast networks my brother and I built. 40 years later these same toys are used by our own children.
These wooden toys have stood the test of time much better than any plastic ones we had at the time.
In every regard.
Wood certainly is a suitable material -- in Germany where I live, there are at least two toy stores around the block that carry a large selection of wooden toys. It may be a German thing, but people here hold them in high regard.
Wooden toys are more expensive and often less complex -- perhaps that is what you are referring to?
Yeah, like for example I really adored the Brio railways a sister comment mentioned, but I never saw anyone have more than maybe a figure eight with a bridge, presumably because they're intended for younger kids that will want the more complex Lego stuff a year or two later anyway.
This. I feel a big problem the industry has is that they started to care more about ads and just grabbing attention than actually caring about product quality. Sure, you will sell more and toys will be frequently replaced, but in the end I do not believe that's an stable plan.
I mean, economically understandable, but I hope we get our focus back on 'good toys' soon. Actual engagement over stimulus overload. Toys are so important for kids, and I think parents are already realizing again.
> The 80s Transformers movie killed off all of their characters and introduced new ones to sell more toys.
Constantly introducing new characters (and letting others fall into the background) worked for them, but actively killing them off backfired badly.
Transformers saw meteoric growth, from the first introduction of the comics and TV series in 1984 to the star-studded cast of the movie in 1986, then viewing figures plummeted. They misjudged how invested a large part of the audience were in their favourite characters: mainly Prime but also others. In fact they brought Prime back only one year later, though the damage was done: kids were moving on to the next fads. The decline would likely have happened anyway due to the audience moving on to other things, but the movie for all its success is credited with accelerating that significantly.
It's our collective fault that industry produces shitty producs. If consumers were not buying shitty products and preferred more expensive but better quality toys, what do you thing industry would be producing?
The fact is that average toy buyer does not care much about quality and people who actually do are too few for the industry to change the trend.
Also, I suspect, a large part of the reason is that having X dollars to spend most consumers will prefer to buy more flashy toy.
If I were looking at this through my eyes as a child (especially one that has reached the age of awareness of social pressures and advertising)...
I have no interest in wooden toys, (most) board games, kites, or nice dolls... I want the toys that have the cool movie or TV show tie-ins, I want the toys that exist in these expansive worlds I'm familiar with, I want the toys that all my friends have (and, to a certain extent, expect me to have)...
Projecting things like "children like it that their cousins play with the same toys they've played with when younger" seems extremely questionable (and, if I had to guess, hugely false - what kid wants old toys from a cousin).
This is not about a shift in the toy market, it's about Toys "R" Us.
My last visits to the Toy'R'US store in Paris (13eme Arrdt) was pretty depressing. Half of the "boys" toys are Star Wars and Marvel stuff, half of the "girls" toys are Disney princesses... So maybe (IMHO) the toys industry has a licensing issue.
When I was a kid I loved toy stores for discovering new stuff like https://en.wikipedia.org/wiki/Micronauts (ugh! it was in the 70s/80s!). Nowadays you cannot discover by going to some store and everything is overclassified (toy stores or comic toys). BTW Japan used to have better quality toys.
This is the first time I feel comfortable saying "But think of the children".
How can this country be creating a world where children grow up without toy stores? When I was a kid Toys 'R' Us was a wonderland that excited my imagination around every corner.
Money isn't everything. Money doesn't even really matter at all. A world without toy stores matters.
Toys r' us isn't some wonderland of childrens toys. It was piled high with plastic crap which is why it hasn't survived. There are still plenty of small independent toy shops where kids can get really nice and quality toys. Toys 'r' us is amazing for kids - but go back as an adult. They're badly maintained, they're full of over-priced rubbish. They're not a good example of a toy shop.
> Toys 'r' us is amazing for kids - but go back as an adult.
It kind of sounds like you're agreeing with the GP. Kids love mountains of cheap plastic crap so for them it can be exciting even if parents detest it...
I don't know the US, but here in the UK the rival toy stores - Smyths and The Entertainer are more entertaining for children and The Entertainer is predominantly based in town centres.
Toys R Us relies upon parents driving to an out of town shopping centre. There are also independents that do a better job of presentation than Toys R Us. They're more expensive but so are Toys R Us compared to Amazon.
The store in Germany, Reutlingen to be exact, wasn’t appealing. The toys were ok, but the location wasn’t the one to go with kids on the weekend. Worn out buildings in industrial area.
The toy shop situation in Germany is desperate. The ToysRUs near Cologne looks like they are from the 60s and is hardly distinguishable from local Obi or Toom hardware store.
It is not an attractive place for the kids to visit.
I'm not an expert on the subject but I think the problem is there's a "Boys" and "Girls" and "Toddlers" toy isle in every Walmart in America. They don't have the selection but they carry the hot products.
In the UK Toys R Us was really grim and dirty, the staff were distracted, the whole place felt like a prison you wanted to escape from. I'm not at all surprised by its demise.
Maybe in the US they're different, but I always found Toys R Us shops to be pretty uninteresting, they're like a supermarket that happens to have boxes of toys instead of boxes of detergent.
As a kid, seeing toys everywhere, floor to ceiling, on every aisle... It's awesome. I still remember that feeling of wonder from walking into a TRU store and seeing toys everywhere, and I'm 40 years old now.
It's different then walking into a Walmart or Target and seeing a toy section, because it's surrounded by other things and there's not nearly as many toys to look at.
I would have much the same feeling if I didn't have a child myself. There are many good toy stores around. Toys-R-Us just isn't one of them anymore. At some point between when I was a child and now, someone cannibalized that whole business for short-term profit, and that seems to have come due.
Last time I was there, there were zero toys at Toys-R-Us I'd want to buy for my kid. That's not a commentary on socioeconomic status either; I'm pretty poor. But I can get high-quality educational toys elsewhere cheap.
"there were zero toys at Toys-R-Us I'd want to buy for my kid."
Looking over these comments I see a lot of adults talking about buying toys for their children as adults and you are all missing the entire point.
The toys aren't for you. Toys do not exist for you to mold your children into whatever predestined vision you have for them. The toys the kids want are cheap and plastic and they excite their imagination. They look cheap and plastic to you because you're 30 years older and playing with $2,000 computers or $30,000 cars (yes, your cars are toys).
Toys are about giving a child property they can do whatever they want with. It's about treating them like they have a mind of their own and letting them explore things that you probably never even thought of. If your "toy buying decisions" are riddled with adult concepts like responsibility and educational value you are missing the point.
I'm not saying educational toys are bad, I'm saying kids know what educational toys are and what they want is action figures and video games and toy weapons. A store that is packed floor to ceiling with exactly those things is a _wonderland_ to a child.
The problem is that kids these days like adults play with digital toys in cyberverse aka videogames and their imaginations while Toys-R-Us just sold cheap plastic stuff in catdboard boxes. Last time I went there trying to shop their videogame selection was disorganized, it was unclear what systems they had in stock and the games that were in stock were random.
Toys in our youth were well-marketed phenomens that everyone had to have and a store could consistently profit off of by having them in stock. How do you stock Minecraft mods ? There are also still lots of physical toys, probably too many of them considering how often they are made to be disposable and prolific.
Humanity lived for a while without toy stores, and I think many children never experienced any. I personally always felt these were too big and creating envy and frustration in children, cause of course they'll want everything in them.
I get the feels when you got a trip to Toys R Us it was really cool.
Today, my kids get to a toy store weekly - Walmart and Target have pretty decent sized toy departments that they repeatedly get lost in for a while. There isn't a need to go somewhere to find out what is new, kids just research it online.
Target's website prices are usually close to Amazons and they will price match themselves.
Toys R Us had slightly higher prices than pretty much everywhere, even a Lego store was usually cheaper.
What I hope this spawns are more mom-n-pop toy stores that will carry the specialty items.
This might be an unpopular opinion, but I love the board game / toys sections in Barnes and Noble. I think it was a smart business move and I think they play to the market well to put learning/creative/"nerdy" toys alongside books.
Amazon might have been one of the final nails in the coffin, but most of the wood came from elsewhere. The reality is that this is now another on the long list of companies killed by private equity:
"The downfall of Toys “R” Us can be traced back to a $7.5 billion leveraged buyout in 2005, when Bain Capital, KKR & Co. and Vornado Realty Trust loaded the company with debt. For years, the retailer was able to refinance its debt and delay a reckoning. But the emergence of online competitors, like Amazon.com Inc., weighed on results. The company’s massive interest payments also sucked up resources that could have gone toward technology and improving operations."
> A group of toymakers led by Isaac Larian...submitted a bid to buy Toys R Us’s Canadian arm, which includes 82 stores, according to Larian. He added that he is also looking into buying as many as 400 U.S. stores, which he would seek to operate under the Toys R Us name.
Hang on, a leveraged buy-out caused this? So basically, someone can borrow more money than the business can ever afford to pay back, and then that business can be taken over and go bankrupt, even though it financially has no issues?
Someone was trying to reboot Circut City in a similar fashion
They reached out to my former company (a retail marketing firm) for some work a little over a year ago, and Googling the name shows it’s probably not going so well.
People hate Circuit City. Not quite clear why you'd want to start with a hated brandname. There was the whole restocking fee thing, the DMCA thing, and a whole bunch of others. I don't quite recall them all. Plus, it was always overpriced.
I don't know why anybody would dive in to save a company like this. This model just doesn't work any more.
Toy purchasers know exactly what they want. The often know exactly how much it costs elsewhere. The only reason they would go into a toy shop is if they need it right now. Online retail has been eating into that for years but it's coming to a head now next-day is common and same-day exists for many people.
To all the people I argued with online a couple months ago, looks like the executive compensation the board approved won't really matter. Everyone was up in arms about the money that the new executives could make, which was good money, but not guaranteed. They had to hit aggressive metrics to make that happen. That doesn't seem to be happening, so thousands will lose their jobs.
Toys R Us was an awesome place in the 80s when it was the only place to get things like video games. It was also kind of like the Xmas sears catalog, a nice place to browse and dream. Now it’s kind of obvious how we don’t need it.
Losing Babies R Us, however, is going to be inconvenient.
I would highly recommend Netflix's "The toys that made us". It has 4 episodes on GI Joe, Star Wars, He Man and Barbie. It should appeal the entrepreneurial spirit, nostalgia and in general love for toys and makers.
Experts (?) with their "sense of excitement" and such, but the parents shopping for this year's Xmas sensation consumer good will be looking at price and availability (with "Getting the hell out of there" likely somewhere in the mix), hence Walmart then, and Amazon now.
The terrible loss of jobs side - a part of me feels this is a just punishment for the most offensively bad jingle ever to be inflicted on the public. I've been meaning to look up who composed it so I can enact a terrible curse on them, their children and their children's children.
So in some ways this is similar to Blockbuster. Ignoring much of the debt brought on by that buyout it appears they simply could not adapt the shopping preferences of their market. Yes the debt was a dark cloud hanging over them but if what the article implies is true it was only a matter of time before this result would have occurred; it might have been a more stable transition but it would have come.
I also believe that not only did they succumb to online retailers but their price point was easily undercut by the dollar style stores in some markets and besides pricing the retail locations were not always ideal
.... Or they could have made play areas kids wanted to go to (when I was a child, going to Toys-r-Us was the ultimate thing), and sold toys people wanted (instead of branded sensory-overload crap).
I am just not sure that would save this business model though.
IMO it is very much like Guitar Center for music. There is no way Guitar Center is around in 10 years and there is nothing that can be done on their part. The whole concept that the business is based on is outdated.
I'm curious what it is about Guitar Center that you're saying is outdated:
I would think buying an instrument demands at least some hands-on experience to confirm your choice, but not many parents are concerned with giving their kids a test drive of new toys before purchase (and indeed can't, due to packaging).
> A year later the company was taken private by KKR, Bain Capital and real estate firm Vornado. The $6.6 billion purchase left it with $5.3 billion in debt secured by its assets and it never really recovered.
http://money.cnn.com/2018/03/15/news/companies/toys-r-us-clo...
Maybe the physicial toys business is totally screwed, but this isn't evidence of that. It's evidence of a company being loaded down with debt and drowning under it.