Toys ‘R’ Us is closing 180 stores — approximately 20% of its physical footprint in the U.S. — in its latest effort to restructure the company and exit bankruptcy. The retailer plans to close the stores between February and April 2018. The closures are still subject to court approval.
The announcement comes four months after the company filed for bankruptcy protection.The retailer has $4.9 billion in total debt, with $1.7 billion of it due in 2019, and has lost approximately $2.5 billion since it last reported an annual profit five years ago.
Chairman and CEO David Brandon addressed the closures on the Toys ‘R’ Us web site, reiterating that the company will convert an unspecified number of locations into co-branded Toys ‘R’ Us and Babies ‘R’ Us stores. The retailer already stated it would invest $277 million through 2021 to start converting these locations.
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“The Toys ‘R’ Us store closings will reduce rent expense and allow the company to focus all of its operating efforts on only its best locations,” said Moody’s Lead Retail Analyst Charlie O’Shea in commentary provided to Retail TouchPoints. “Store closures and rent rationalization are critical facets of any bankruptcy process, allowing companies to reduce costs and ideally emerge with the strongest physical footprint possible.”
The consolidation decision appears to be a smart move; in its most recent fiscal year, baby gear accounted for 35.9% of total domestic revenue at Toys ‘R’ Us/Babies ‘R’ Us— representing the largest share of the retailer’s U.S. product sales. This strongly suggests that baby products, not toys, remain the biggest differentiator for the two brands.
Like many other brick-and-mortar retailers, Toys ‘R’ Us simply may be overstored. Out of the 881 Toys ‘R’ Us stores in the U.S., 183 stores (including those under the Babies ‘R’ Us nameplate) have at least one other Toys ‘R’ Us store within a 15-minute drive, UBS wrote in a note to clients in December 2017.
Melanie Teed-Murch, President of Toys ‘R’ Us Canada, said in a separate memo that the 83 Canadian locations won’t be impacted by the closures.
