Toy Store Bankruptcy and Closures Show Familiar Pattern

January 2018 – Toys “R” Us, the large US toy retailer, has announced plans to close 182 of its stores nationwide – 24 in California – as it attempts to struggle with bankruptcy reorganization. Stores from Yuba City, Sacramento, the San Francisco Bay Area, Fresno, Bakersfield, Los Angeles, Riverside, and San Diego will all be affected. The chain had filed for bankruptcy protection in September of 2017.

The planned closings represent about 20 percent of Toys “R” Us stores in the United States, which span from California to New York.  It will impact as many as 4,500 employees. A company spokeswoman said the company would try to find positions in other stores for as many of the displaced workers as it could.  The company will offer paid severance for terminated workers.

When Toys “R” Us filed for bankruptcy, it initially kept all of its stores open and hired more workers ahead of the holidays. The closings may have been accelerated by what the company said was a rough holiday season. Even as other retailers experienced banner sales in November and December, Toys “R” Us said, its sales were disappointing.

Adding to the chain’s cash-flow problems have been the recent increase in the the minimum wage.  And like many other brick-and-mortar retailers, the chain has struggled to adjust its business models to deal with the rise of e-commerce. But Toys “R” Us was also drowning in debt.

The company said it anticipated laying off such a large number of workers in such a short period that its payroll department might not be able to comply with certain state laws requiring that laid-off workers be paid immediately after their last day.

Toys “R” Us also said it would seek to pay bonuses of up to $3.6 million to employees who work at the stores that are closing and help them meet their liquidation targets.

However, the bankruptcy efforts have been hampered by poor choices, including excessive bonus payments in a time of austerity, and the payment of large fees to a vast array of bankers, lawyers, and consultants in an attempt to steer the company toward solvency.

This will be a major blow to the retail toy industry.  Toys “R” Us is one of the few remaining chain toy-only outlets.