Toys "R" Us

**Toys "R" Us** is an international toy, clothing, video game, and baby product retailer owned by Tru Kids, Inc. (d.b.a. Tru Kids Brands) and various others. It was founded in April 1948, with its headquarters located in Wayne, New Jersey, in the New York metropolitan area.

Founded by Charles Lazarus in its modern iteration in June 1957, Toys "R" Us traced its origins to Lazarus's children's furniture store, which he started in 1948. He added toys to his offering, and eventually shifted his focus. The company had been in the toy business for more than 65 years and operated around 800 stores in the United States and around 800 outside the US, although these numbers have steadily decreased with time. Toys "R" Us expanded as a chain, becoming predominant in its niche field of toy retail, and also branched out into baby supplies and children's clothing. At its peak, Toys "R" Us was considered a classic example of a category killer. With the rise of mass merchants, as well as online retailers such as Amazon.com, Toys "R" Us began to lose its share of the toy market.

The company filed for Chapter 11 bankruptcy protection on September 18, 2017, and its British operations entered administration in February 2018. In March 2018, the company announced that it would close all of its U.S. and British stores. The British locations closed in April and the U.S. locations in June. The Australian wing of Toys "R" Us entered voluntary administration on May 22 and closed all of its stores on August 5, 2018. Operations in other international markets such as Asia and Africa were less affected, but chains in Canada, parts of Europe and Asia were eventually sold to third-parties.

The company continues to operate as the licensor of the chain's international operations, but its lenders announced in October 2018 that it planned to re-launch the U.S. Toys "R" Us retail business in the future, citing the value of its brand. The lenders also partnered with Kroger to add "Geoffrey's Toy Box" (named after the chain's mascot) pop-up departments to selected locations in order to give Toys "R" Us a presence during the holiday shopping season.

On January 20, 2019, the company emerged from bankruptcy as Tru Kids.

## History

In April 1948, Charles P. Lazarus founded a baby-furniture retailer Children's Supermart in Washington, D.C., during the post-war baby boom. Lazarus, who served in the Army during World War II, opened the first store at 2461 18th St. NW. He began receiving requests from customers for baby toys. After adding baby toys, he got requests for toys for older children. It was acquired in 1966 by Interstate Department Stores, Inc., owner of the White Front, Topps Chains and Children's Bargain Town USA.

The focus of the store changed in June 1957, and the first Toys "R" Us, dedicated exclusively to toys rather than furniture, was opened by Lazarus in Rockville, Maryland. Lazarus also designed and stylized the Toys "R" Us logo, which featured a backwards "R" to give the impression that a child wrote it. The original Toys "R" Us store design from 1969 to 1989 consisted of vertical rainbow stripes and a brown roof with a front entrance and side exit.

Interstate undertook an aggressive but ill-fated expansion, overextending itself, and the 1973-74 recession aggravated its problems. In 1974, Interstate declared bankruptcy, its debt at the time the largest accumulation of liabilities in retail history. By that year Interstate had 51 Toys "R" Us stores, and it continued to open new ones during its court-ordered reorganization. Before 1974 Toys "R" Us was still ordering and counting stock manually, but that year the company streamlined its ordering and inventory system by installing its first computer mainframe. In years to come the company would upgrade its computer system many times to keep pace with its ever-growing sales volume and inventory level.

In 1978, Interstate emerged from its reorganization a vastly different company. It had closed or sold all of its discount store operations; only the 63-store toy chain and ten traditional department stores remained. To reflect its principal business, the company had changed its name to Toys "R" Us, Inc., with Lazarus serving as its president and CEO.

Lazarus's approach to pricing was vastly different from that of his competitors: he sold the items shoppers wanted most at little or no profit. Customers then automatically assumed most of the store's items were equally well-priced and did the rest of their shopping there. By 1980 Toys "R" Us had earned a solid reputation as a retailer of great efficiency, with 101 stores around the country. Since its reorganization three years earlier, sales had more than doubled to nearly $750 million in fiscal 1981, a year in which many toy sellers suffered, especially during the holiday season.

There seemed to be no serious threat to the company's growing dominance of the retail toy market--with its 120 stores--and executives were often quoted as saying they sought not so much to boost sales as to increase market share, which Toys "R" Us did from 5 percent in 1978 to 9 percent in 1981. The following year as rival Lionel Leisure, a chain of 98 toy stores, filed for bankruptcy, Toys "R" Us announced the formation of a new division to sell name-brand children's apparel at discount prices. The company had first-hand experience with the baby boom generation's willingness to spend money on their children and opened two pilot Kids "R" Us stores in the New York metropolitan area during the summer of 1983. The 15,000-square-foot exuberantly decorated stores featured electronic games and clearly marked departments. From the day the first Kids "R" Us stores opened, owners of department and specialty stores recognized them as a major threat to their survival.

All was not easy for Kids "R" Us, however. In the 1980s traditional department stores and small children's shops complained that name-brand apparel makers were selling their goods to discounters; new competition from Kids "R" Us further raised the stakes. Just a few months after Kids "R" Us opened its first two stores, Toys "R" Us filed suit in September 1983 against Federated Department Stores Inc. and General Mills, Inc., charging the companies with price-fixing. The following month, the company brought a similar suit against Absorba, which had agreed to supply the new stores, but later allegedly refused to fill the orders. Toys "R" Us later dropped the suits, noting only that circumstances had made it prudent to terminate litigation.

The Kids "R" Us concept successfully implemented many of the policies Toys "R" Us had, such as discount pricing, tight inventory control, purchasing in large volume, and opening stores in low-rent strip malls along major thoroughfares. In 1983 the company surpassed the $1 billion milestone, with sales of $1.3 billion. The following year was full of firsts for Toys "R" Us, beginning with its first foray outside the United States in 1984, with four Toys "R" Us stores in Canada and one in Singapore; two more Kids "R" Us stores (with an additional 5,000 square feet) in New Jersey; and a generous stock option plan open to all full-time employees. Lazarus later told*Dun's Business Month* that salaries alone were no longer enough to make people feel they had a stake in a company's success.

By the spring of 1985 there were ten Kids "R" Us units in New York and New Jersey with an additional 15 to be opened by year's end, while five Toys "R" Us stores opened in the United Kingdom. In early 1986*Dun's Business Month* cited Toys "R" Us as one of the nation's best-managed companies and credited Lazarus with developing an extraordinary management team (most of whom were promoted from within). Between 1980 and 1985 the toy retailing industry grew 37 percent, while sales at Toys "R" Us surged by 185 percent, leading the company to estimate that it had 14 percent of all U.S. retail toy sales, an increase of 9 percent from its share just seven years earlier when the company had emerged from its reorganization.

During the summer of 1986, Toys "R" Us and Montgomery Ward announced a joint venture to begin in Gaithersburg, Maryland, that fall. Each store would operate independently, but would share an entrance and exterior sign. The arrangement was a boon to Ward, which had restructured its business and had surplus floor space in many of its locations. Toys "R" Us found the arrangement beneficial, too, because many of the Ward stores were in excellent locations and rental rates were often quite reasonable. That same year, it purchased Toy Discounts, a joint-venture between Montgomery Ward and Rite Aid, renaming the stores into Toys "R" Us.

In 1988, Toys "R" Us shed the last reminder of its connection to Interstate Stores by selling the remaining department stores in Albany and Schenectady, New York, and Flint, Michigan, to that division's management.

Over the next few years, Toys "R" Us continued to expand in high gear, especially overseas. Once operating in a handful of countries worldwide, company stores now popped up all over the globe, in Hong Kong, Israel, the Netherlands, Portugal, Scandinavia, Sweden, and Turkey, while the heaviest concentrations were in Australia, Canada, France, Germany, Japan, Spain, and the United Kingdom. Consequently, Toys "R" Us's annual figures reflected this steady growth: fiscal 1992 sales reached $7.2 billion; 1993, $7.9 billion; and a big leap in 1994 to $8.7 billion. Similarly, earnings climbed from 1992's $438 million to 1994's $532 million. In early 1994, there was also a changing of the guard: Charles Lazarus, the company's longtime chairman and CEO, turned the duties of the latter over to Michael Goldstein, vice-chairman; and Robert Nakasone, formerly president of worldwide stores, was appointed president and COO.

In 1994, Toys "R" Us purchased Toys Supercenter, a chain of 25 toy stores, and later renamed the stores into Toys "R" Us, while the remainder were sold to third party companies or even be closed.

In 1995, the company's sales once again soared to $9.4 billion (helped in part by the introduction of educational and entertaining computer software), yet earnings were heavily slashed ($148 million) due to restructuring costs and grand plans for the near future. As Toys "R" Us looked to the new century, the company was determined to become the ultimate "one-stop kid's shop." To further this plan, the company adopted several ambitious programs to take Toys "R" Us to the end of the 1990s and beyond. First and foremost was restructuring, which included streamlining merchandise by up to 20 percent, closure of 25 underperforming stores, and the consolidation of several distribution centers and administrative facilities domestically and overseas. In addition, there would be new Kids "R" Us stores, the debut of Babies "R" Us and superstores, and the introduction of "Concept 2000," for new and renovated Toys "R" Us stores--all to provide "the ultimate kids shopping experience."

The first three Babies "R" Us stores, each measuring about 45,000 square feet, opened in 1996 with an additional seven planned before the end of the year. Like its siblings, Babies "R" Us stores were filled to the brim--with clothes, juvenile furniture, carseats, and feeding and infant care supplies. Like better department stores, Babies "R" Us also offered a computerized national gift registry. At the same time, the first Concept 2000 toy store, one of 12 announced for the year, debuted in July. The Concept 2000 facility was a megastore of 96,000 square feet, replacing the formerly successful supermarket setup with an oval format with color-coordinated departments, lower shelving, a Bike Shop, learning centers, and special sections for Barbies, Legos, and video games. Moreover, the company also introduced experimental superstores (the first one, Toys "R" Us Kids World, opened in November 1996 near company headquarters in New Jersey) combining the inventories of Kids "R" Us and Babies "R" Us with a multitude of top-of-the-line toys. Superstores were slated to include fast food, candy shops, hair salons, photo studios, party rooms, and possibly even rides such as carousels and Ferris wheels.

In February 1997, Toys "R" Us acquired Baby Superstore, Inc., a 78-store chain based in Duncan, South Carolina, for $376 million. By the end of 1997, the acquired stores had been converted to the Babies "R" Us format, and the company had instantly transformed a fledgling brand into the largest retailer of baby products in the country. With the opening of a number of brand-new Babies "R" Us outlets in time for the 1997 holiday season, the store count neared the 100-unit mark. Sales for the chain were already in excess of $600 million.

### 21st century

To improve the company, the board of directors installed John Eyler (formerly of FAO Schwarz) in May 2000. Eyler launched an unsuccessful, expensive plan to remodel and re-launch the chain. Blaming market pressures (primarily competition from Walmart and Target), Toys "R" Us considered splitting its toy and baby businesses. On March 17, 2005, a consortium of Bain Capital Partners LLC, Kohlberg Kravis Roberts (KKR) and Vornado Realty Trust announced a $6.6 billion leveraged buyout of the company. Public stock closed for the last time on July 21, 2005 at $26.74—a 63% increase since when it first announced that the company was put up for sale. Toys "R" Us became a privately owned entity after the buyout. The company still files with the Securities and Exchange Commission, as required by its debt agreements.

On August 23, 2011, Toys "R" Us announced it would begin to open combined Toys "R" Us/Babies "R" Us stores, with 21 new stores using the concept (11 of them having a full-sized "superstore" format), and 23 remodeled into the concept. The new locations were being built in Alabama, California, Georgia, New Jersey, and Texas.

In December 2013, eight days before Christmas, Toys "R" Us announced their stores in the United States would stay open for 87 hours straight. The flagship store of the retailer in Times Square was open for 24 hours a day from December 1 to 24, to cater to tourists. The announcement came after snow and rain caused a nearly 9 percent year-over-year decline in U.S. store foot traffic. This move also pushed the retailer to hire an additional 45,000 seasonal workers to cater to the demand of the extended store hours. Since the toy business is incredibly seasonal, more than 40% of the company's sales come in during the fourth quarter of the year.

In 2014, Toys "R" Us announced its "TRU Transformation" strategy, which concentrated on efforts to fix foundational issues affecting future growth, including making stores less cluttered, improving the customer experience, clearer pricing strategies and promotions, and tighter integration of its retail and online businesses. In 2015, the company launched the first of a new concept store called the "Toy Lab" in Freehold, New Jersey. The new layout provided more space for interactive exhibits and areas to play with new toys before purchase. This concept has since been expanded to stores in California, Delaware, Florida, New York and Pennsylvania.

### Bankruptcy

#### United States and Canada

On September 18, 2017, Toys "R" Us, Inc. filed for Chapter 11 bankruptcy, stating the move would give it flexibility to deal with $5 billion in long-term debt, borrow $2 billion so it can pay suppliers for the upcoming holiday season and invest in improving current operations. The company has not had an annual profit since 2013. It reported a net loss of US$164 million in the quarter ending April 29, 2017. It lost US$126 million in the same period in the prior year. It had been paying US$400 million per-year to service its debt, which prevented it from investing in improvements to in-store experiences to compete with Amazon and Walmart. Although the "retail apocalypse" was a factor, some analysts cited that the rapid increase in debt occurred under its private equity ownership.

It was initially stated that only the U.S. and Canadian operations would be affected, and that its brick-and-mortar stores and online sales sites would continue to operate. In January 2018, the company announced it would liquidate and close up to 182 of its stores in the U.S. as part of its restructuring, as well as convert up to 12 stores into co-branded Toys "R" Us and Babies "R" Us stores.

On February 28, 2018, it was reported that the company was exploring retaining its stronger Canadian operations, and the divestiture of some of its corporate-owned stores to franchises (leaving approximately 200 in a downsized chain). Toys "R" Us Inc. later announced that all U.S. locations would be closed.

On March 15, 2018, Toys "R" Us received approval from the bankruptcy court to liquidate its stores. There were buyers interested in acquiring groups of stores to use as showrooms, as well as others interested in acquiring the chain's brand and associated intellectual property. The company indicated in filings that the Canadian operations were profitable, and desired to preserve the operations of the 82-store chain through a sale. MGA Entertainment had made an offer to acquire the Canadian operations, while MGA Entertainment CEO Isaac Larian attempted to raise $200 million through investments and public crowdfunding to purchase at least 400 of the locations.

Liquidation sales began on March 23, 2018. The chain's online store shut down on March 29, redirecting visitors to information on the liquidation and closures. On April 24, 2018, it was announced that the Canadian division would be sold to Fairfax Financial for approximately $234 million, and would continue to operate the locations under the Toys "R" Us name. Fairfax stated that it was potentially interested in purchasing U.S. locations as an extension of these Canadian operations.

On June 29, 2018, Toys "R" Us shut down all of its remaining U.S. locations, after 70 years of operations. In early July 2018, it was reported that unknown benefactors had bought out all of the remaining stock of two locations in North Carolina so they could be donated to charity.

In November 2018, Fortune noted that the absence of the retailer during the 2018 holiday season represented a US$4 billion chunk of toy sales from which other retailers could benefit. Party supply retailer Party City capitalized on the closures by establishing temporary pop-up stores under the branding Toy City—some of which filling vacancies left by Toys "R" Us locations.

#### Europe

On December 4, 2017, the company reported that it would be liquidating and closing at least 26 stores in the United Kingdom as part of an insolvency restructuring known as a company voluntary arrangement. After amassing £15 million in unpaid taxes, Toys "R" Us Limited entered administration on February 28, 2018. On March 2, 2018, it was announced that all UK stores would begin a liquidation sale, and on March 14, 2018, it was announced that all UK stores were expected to close within six weeks. On April 24, 2018, Toys "R" Us stopped trading in the United Kingdom after 34 years of service.

On April 21, 2018, it was announced that UK and Irish rival Smyths would purchase Toys "R" Us stores in Germany, Austria and Switzerland, as well as Toys "R" Us Europe's head office in Cologne. Smyths said that all of the outlets acquired will be rebranded. On April 13, a bid was made by Isaac Larian to buy 356 Toys "R" Us stores for $890 million, but was rejected on April 17 and was fully scrapped on April 23.

#### Australia

The Australian wing of Toys "R" Us entered voluntary administration on May 22. On June 20, It was announced that all of their Australian stores will be closing as well. The closure of all stores was concluded on August 5, 2018.

#### Asia

While representatives of the Asian arm of Toys "R" Us have consistently cited that they operate as a separate legal entity from the parent company and are unaffected by events at the parent company, Toys "R" Us had engaged in talks since February 2018 to offload Toys "R" Us Asia's majority stake to a bidder for a proposed US$1 billion while outlets in Asia continue to operate unaffected. The planned bid was revised downwards to US$760 million in August and scheduled for September while Toys "R" Us sought a United States court order to strip Fung Retailing, a Hong Kong-based partner managing the majority of Toys "R" Us Asian operations, of its right-of-first-refusal purchase option and force Fung Retailing to release its share of the unit. This follows allegations by Toys "R" Us' of Fung Retailing delaying the sale via court proceedings filed through the Hong Kong judiciary system  to discourage rival bidders and acquire Toys "R" Us' share at a lower price; the Eastern District of Virginia bankruptcy court would subsequently issue an order for Fung Retailing to drop its court order for the delay in a September 28, 2018, report.

On November 16, 2018, Toys "R" Us Asia announced that the parent company has formally sold the Asian unit to Fung Retailing and multiple Toys "R" Us lenders at a valuation of US$900 million (later revised to US$760 million), with Fung Retailing receiving an increase in shares of the unit to become the lead shareholder of Toys "R" Us Asia and the unit securing the licensing rights to retain the Toys "R" Us namebrand.

### Restructuring and Tru Kids, Inc.

On October 1, 2018, the company issued a bankruptcy court filing which stated that it would no longer auction off its intellectual property, since its controlling lender planned to "[revive] the business behind the Toys 'R' Us and Babies 'R' Us brand names" with a focus on maintaining existing licensing agreements and establishing new retail opportunities. The company evaluated that selling its brand at auction "[was] not reasonably likely to yield a superior alternative."

At the Toy Industry Association's Fall Toy Preview, the company unveiled plans for a preliminary venture to be known as **Geoffrey's Toy Box**, a wholesale store-within-a-store concept that the company planned to deploy in time for the holiday shopping season. The company planned to revive the Toys "R" Us and Babies "R" Us brands in the future. In November 2018, it was announced that grocery market chain Kroger would add toy displays under the Geoffrey's Toy Box brand to some of its locations, to sell selections of Toys "R" Us private-label products. The brand operates under Geoffrey LLC, an intellectual property holding company within Toys "R" Us.

On January 20, 2019, the company emerged from bankruptcy as Tru Kids.

On June 21, 2019, the company plans to open new stores in the US slated to be 10,000 square feet, roughly the third of the size of the big box brand that closed last year.

## Flagship store

In July 2001, Toys "R" Us opened an international flagship store in New York's Times Square at a cost of $35 million. The 110,000 square-foot store included various themed zones such as an amusement arcade (known as "R"Cade), Barbie (with a life-size dreamhouse), electronics (with dedicated sections like Dance Dance Revolution SuperNova and Skullcandy), Jurassic Park (with an animatronic T-Rex), Lego, Wonka, and the signature indoor Ferris wheel. The store drew thousands of tourists for over a decade before the company decided to cancel its lease on the space in December 2015. In August 2017, Toys "R" Us announced a 35,000 square-foot temporary store near the original one that would be open around the holiday season.

## Theme park

In 2002, Toys "R" Us acquired a struggling theme park, Speedway Park, and renamed the place Toys "R" Us Entertainment Center. It contains a video arcade, a Toys "R" Us store, carnival rides, and more.

In 2008, Toys "R" Us sold the park to ENT Acquisition Corp, an affiliate of Hudson Capital Group, and later renamed the place Amusement Party Center. Toys "R" Us retained their store there until 2018. But will comeback to the theme park in 2019.