There was a time when Toys R Us used to dominate the toy market. As of late, the company is looking at potentially filing for bankruptcy due to its massive debt.
The toy retailer has roughly US$5 billion in debt, of which US$400 million will be due next year. As such, Toys R Us has hired law firm Kirkland & Ellis LLP to help with its restructuring options and ways to cope with the debt.
“What Toys R Us has been doing is extending the debt as it comes due and paying higher interest rates,” Howard Davidowitz, the head of the retail consultancy and investment bank Davidowitz & Associates, was quoted as saying. However, Davidowitz said that such a strategy isn’t sustainable, explaining that “they have got enormous debt”.
Like most retailers, Toys R Us makes most of its profits (both online and in stores) during the holiday season. In recent years, the toy industry has been seeing a decline in sales due to the growing popularity in electronic gaming apps. While a company such as Toys R Us is still a valuable brand, investors may no longer be interested in investing in a sinking ship.
If Toys R Us declares bankruptcy, there is no doubt that the 34 outlets in Malaysia will be affected.