Toys R Us is seeking bankruptcy court approval to immediately liquidate its U.S. business, including conducting going-out-of-business sales at its 735 remaining stores.
The Wayne, N.J.-based toy chain has not yet announced a timeline, as it is still waiting for the court's approval. Closing sales already have begun at 144 stores — including six in the Chicago area — that Toys R Us earlier this year decided to shut down.
Despite the toy chain's financial difficulties, it accounts for a significant slice of U.S. toy sales and has sizable operations in Illinois as well as nationwide. Winding down its U.S. business will mean closing 31 Illinois stores, nearly spanning the length of the state from Gurnee to Marion, leaving nearly 1.3 million square feet of retail space to fill. Toys R Us also will leave a 671,040-square-foot distribution center in Joliet. The toy chain couldn't immediately provide an estimate of the number of Illinois employees affected, but it has roughly 33,000 workers nationwide.
Dismal sales during the crucial holiday shopping season helped doom Toys R Us' turnaround attempt. But the retailer had already been struggling to adapt to the challenges facing many traditional bricks-and-mortar retailers while saddled with hefty debts dating back to a 2005 leveraged buyout.
For consumers, the clock is ticking to use up gift cards left over from the holidays. Toys R Us confirmed it will honor gift cards and other rewards dollars through April 14.
Toys R Us estimated that about $205.9 million in gift cards and merchandise credit was outstanding when it sought bankruptcy protection in September.
Sen. Charles Schumer, D-N.Y., wants the toy chain to let consumers redeem gift cards for cash "so they are not as worthless and unwanted as a lump of coal in a stocking," he said in a Wednesday news release.
The retailer is still exploring options for selling its stronger Canadian business, including a plan that would save up to 200 top-performing U.S. stores as part of that deal.
News of the shutdown came about six months after Toys R Us sought Chapter 11 bankruptcy protection. At the time, the struggling retailer sounded optimistic about a turnaround, and it secured a loan of more than $3 billion to keep business going during restructuring.
But U.S. sales over the all-important holiday season, which typically accounts for 40 percent of its revenue, were "well below worst case projections," Toys R Us said in a bankruptcy court filing. The bankruptcy took a toll on the confidence shoppers and vendors had in the chain, which also said it had trouble matching competitors' prices.
"I am very disappointed with the result, but we no longer have the financial support to continue … U.S. operations," Toys R Us Chairman and CEO Dave Brandon said Wednesday in a news release.
He called it a "profoundly sad day for us as well as the millions of kids and families who we have served over the past 70 years."
When Toys R Us filed for bankruptcy protection in September, it said the "vast majority" of its 1,600 Toys R Us and Babies R Us stores worldwide were profitable. It still accounted for roughly 15 to 20 percent of U.S. toy sales, an unusually high share for a retailer whose bankruptcy ends in liquidation, said Stephanie Wissink, managing director and consumer products analyst at Jeffries.
But it struggled to adapt to big changes in consumers' shopping habits, including a switch from specialty big-box chains to one-stop mass merchants like Walmart and Target and online retailers like Amazon. Toys R Us was too slow to embrace e-commerce and invest in the in-store experience, said Tim Barrett, senior retailing analyst at Euromonitor International.
"Spread thin across too many countries, with too many stores and too much debt, it boxed itself into its current fate," he said in an emailed statement.
But its debt, much of which stemmed from 2005, when three private investment firms took the company private, limited its ability to invest and compete with fast-growing rivals.
The company got its start in 1948, when founder Charles Lazarus opened a baby furniture store in Washington, D.C., amid the postwar baby boom. He eventually added toys to encourage parents to keep coming back before opening his first toys-only shop — Toys R Us, with the backwards "R" logo to mimic a child's writing.
"It does feel like a bit of Americana is being lost, the idea of this emporium of toys, a place that fulfills the physical manifestation of a child's imagination," said Wissink, the analyst at Jeffries. But the next generation of toy shoppers don't seem to have the same attachment, she said.