Toys R Us struggles with bankruptcy

Toys R Us ThailandToys R Us, trying to reorganise under bankruptcy leading into the holiday season, was seeing overall sales fall and those at established locations drop even more sharply as it was heading for a Chapter 11 filing.

Weaker sales illustrated the difficulty the retailer was having amid more intense competition from businesses such as Amazon and Walmart that can offer lower prices. Toys R Us was already hamstrung by $US5 billion ($A6.4 billion) in debt.

The toy retailer that also owns the Babies R Us chain says that for the three months ended July 29, sales fell to $US1.46 billion from $US1.56 billion.

Even more telling was its same-store sales, considered a key indicator of a retailer’s health. That figure tumbled 6.4 per cent in the quarter.

A year earlier, those sales edged up 0.5 per cent. Toys R Us said the same-store sales decline was due to softness in the US and Canadian markets. Domestically, same-store sales fell 6.8 per cent from a year earlier, and in Canada they declined 3.3 per cent.

Toys R Us, which runs around 1,600 stores, filed for Chapter 11 bankruptcy protection this month as it heads into the all-important holiday season, which makes up around 70 per cent of annual toy sales. Toys R Us has said that it has received $US3.1 billion in new financing that will allow it to pay its employees and suppliers through the period.

Aside from its sales woes, the company has struggled with debt since private-equity firms Bain Capital, KKR & Co and Vornado Realty Trust took it private in a $US6.6 billion leveraged buyout in 2005. The plan had been to take the company public, but that never happened because of its weak financial performance. And the debt meant Toys R Us couldn’t invest in its business.

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