Blame the internet for this one. Toys 'R' Us has filed for bankruptcy.
From television (*cough* Netflix) to online shopping (we're looking at you, Amazon), the internet has literally changed the landscape of our lives. Now retailer Toys 'R' Us
seems to be the latest victim, with the former toy giant filing Chapter 11 bankruptcy on Monday -- no doubt due to the increase in consumers doing most of their shopping online, through cheaper outlets. Toys 'R' Us hired attorneys at the Kirkland & Ellis law firm to actively address the company's $7.9 billion in debt -- $400 million of which is due in 2018. The decision to file for Chapter 11 protection before the crucial Christmas season helps them restructure the debt and provides the company with a sizable loan that would reassure nervous suppliers (like Mattel and Hasbro) that the company is stable enough to stock its shelves with their products and handle the coming influx of business over the holidays.
A Chapter 11 filing
does not mean that any of Toys 'R' Us's 1,600 brick-and-mortar stores will be closing, however. It's simply an effort to reorganize and come up with a plan to pay its creditors over time while keeping the business alive.
Part of the retailer’s current financial woes stem from vendors demanding tighter repayment terms over fears that Toys ‘R’ Us may file for bankruptcy," Reuters reported. "The tighter terms have added to the Wayne, New Jersey-based company’s cash crunch."
Trouble was brewing even before that, however. In 2005, private equity firms KKR & Co LP and Bain Capital LP, and real estate investment trust Vornado Realty Trust combined to buy out Toys 'R' Us for $6.6 billion and take it private, which ultimately left the corporation with sizable debt and an inability to streamline their online shopping process at a time when everything was going digital.
Toys 'R' Us isn't the only one that has struggled amid the changes in the industry. Multiple retailers are closing stores this year
, including KMart, Macy's, J.C. Penney, Sears, Gap, Gymboree, Staples, GameStop, and RadioShack. But Toys 'R' Us is the biggest and latest victim.
Featured image courtesy of Toys 'R' Us.