Toys R Us Inc. fell into bankruptcy after the once dominant toy retailer, saddled with a crippling debt load, failed to keep pace with consumers’ shift to online spending.
Now, California toy mogul Isaac Larian believes he can help Toys R Us reclaim some of its former glory — and he’s willing to bet money on it.
He said Thursday that he is leading an effort to save more than half the 735 domestic Toys R Us stores that are set to close under the retailer’s liquidation plan.
“The toy business will suffer” without Toys R Us, Larian said. "I think as an entrepreneur I can do better, and I like challenges.”
Larian noted that when he brought Bratz dolls to market in 2001, “everybody told me it’s foolish to take on Mattel and Barbie.”
Bratz turned out to be a smash hit, but the stakes may be even higher this time around.
Larian is majority owner and chief executive of MGA Entertainment Inc., a privately held toy maker based in Van Nuys whose lineup also includes Little Tikes products.
If Toys R Us disappears, MGA would lose an outlet that accounts for 18% to 20% of its annual sales.
With a net worth estimated at $1 billion by Forbes, Larian is leading a group of investors who have personally pledged $200 million and are trying to raise an additional $800 million with a crowd-funding campaign.
The group created the hashtag #SaveToysRUs on social media and a website savetoysrus.com that directs consumers to a GoFundMe campaign that has a May 28 deadline.
“I’m very hopeful” about salvaging hundreds of the stores, Larian said. “I am more than 85% to 90% sure I can get [the buyout] funded.”
Saving at least part of Toys R Us’ operations not only would benefit Larian’s company — which noted it was not financially involved in Larian’s effort — but also rival toy makers such as El Segundo-based Mattel Inc., Hasbro Inc. and several smaller toy manufacturers.
“People say that if there is no Toys R Us another retailer will pick up the slack. I don’t think so because they don’t have the room,” Larian said.
Major retailers with large toy departments, such as Walmart and Target, carry about 3,000 fewer items on shelves than Toys R Us stores, said Jim Silver, editor in chief of toy-review site TTPM.com.
Larian stressed that about 130,000 U.S. jobs are at risk, not only at Toys R Us but at suppliers, distribution centers, trucking companies and other firms tied to the retailer.
They include MGA’s Little Tikes plant in Hudson, Ohio, which employs 1,200, because “40% of the products produced by that factory were sold to Toys R Us,” Larian said.
The disclosure of Larian's plan, first reported by the Associated Press, coincidentally came the same day that Toys R Us’ founder, Charles Lazarus, died at age 94.
Lazarus revolutionized the toy retail business after opening a baby furniture store in Washington in 1948. He later began selling toys as well and adopted the Toys R Us name in 1957, with the backward “R” in the logo to give the impression a child had written it.
“I sold my first product to Toys R Us in 1979,” Larian said. “The best memories of my three children when they were young was to go inside a Toys R Us.”
The toy mogul also is leading an investor group that’s making a separate attempt to acquire Toys R Us’ Canadian operations along with about 200 of the chain’s top-performing U.S. stores, MGA confirmed.
Toys R Us declined to comment on Larian’s bids.
Larian’s effort not only faces the hurdle of finding enough additional investors, it also would have to be cleared by the U.S. Bankruptcy Court overseeing Toys R Us’ liquidation.
Assuming it raises the $1-billion total for U.S. stores, Larian’s group first would have to strike a deal with Toys R Us to acquire the stores and then submit that proposal to the court for approval, said Gregory Plotko, a bankruptcy partner in New York with the law firm Richards Kibbe & Orbe.
The court also would hear any objections to the deal, and Larian’s group and Toys R Us would have to persuade the chain's creditors “that what he’s offering is a better alternative than a straight inventory liquidation,” Plotko said.
After filing for bankruptcy protection last September, Toys R Us said last week that it planned to liquidate its U.S. business and close its 735 stores in the United States and Puerto Rico, including 87 in California.
With about $11 billion in annual sales, the chain failed to keep pace as consumers increasingly shopped at Amazon and other online outlets. Toys R Us also was saddled with $5 billion of debt stemming from its buyout in 2005 by a trio of investment firms that took the company private.
Toys R Us had hoped to reorganize under the bankruptcy laws but opted to liquidate after what CEO David Brandon called a “devastating” holiday shopping season last year.
“Maybe they didn’t have the money to invest” in making the chain’s physical stores and Toys R Us’ online shopping site more appealing to consumers, said Larian, who thinks he can improve on that.
Known for his feisty demeanor, well-tailored suits and being a tough competitor, Larian and his toy company were locked in years-long litigation with Mattel. His stature in the industry followed an improbable rags-to-riches story after he immigrated to the United States from Iran as a teenager in 1971. His first job: washing dishes at a Lawndale restaurant.
Larian and his brother eventually started an import business that later became MGA, which blossomed in 2001 with the debut of Bratz, a line of sassy dolls with eye shadow and glossy lips that cut deeply into sales of Mattel’s iconic Barbie doll.
MGA in 2006 acquired Little Tikes, a line that includes playhouses, swing sets and kid-sized cars. MGA’s other lines include LOL Surprise! dolls and Num Noms toys.
The Toys R Us disruption comes at what may be an inopportune time for MGA. The company is preparing to move its headquarters to a $150-million, 24-acre multi-use development that it’s building in Chatsworth. MGA said it’s expected to open by the end of the year.
Even if Larian is successful in raising enough cash to strike a deal with Toys R Us to buy the stores, he will have his work cut out in ensuring he has experienced management, understands myriad real estate leases and adapts Toys R Us’ website to the shifting trends toward more online shopping, Plotko said.
Larian “may have good instincts but he’ll need a good bench,” Plotko said.