An Analysis of The Rebuilding Process of Toy “R” Us

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An Analysis of The Rebuilding Process of Toy “R” Us
Toy “R” Us is a retail store that deals in toys and videogames for kids. Founded in 1957 by Charles Lazarus, it has grown from strength to strength operating for more than 65 years. Focusing the store on a niche to sell toys proved to be a masterstroke as it was able to operate around 1600 stores in the US and outside, in Britain, Australia, Asia, and Africa. In 2005, a consortium of Bain Capital Partners LLC, Kohlberg Kravis Roberts (KKR), and Vornado Realty proposed a buyout at $6.6 billion, but the store went for $26.74 which was a 63% increase in the public stock consequently becoming a privately-owned institution. Problems in management have resulted in significant losses as it has not been able to make a profit since 2013. The debts forced the chain store to declare bankruptcy in 2017 a year, which continued the losses from 2016, losing a close to a combined $300 million in the two years.
Introduction
There have been plans to revive the toy brand in America with the opening of two stores. Under the new management of Tru Kids Brands, there is a need to avoid the mistakes of their predecessors. The fall of Toy “R” Us was not abrupt rather the consequences of managerial decisions. The buyout by the Bain Capital Partners LLC, Kohlberg Kravis Roberts (KKR) and Vornado Realty consortiums, private companies may not have been the best solution to revive its floundering state. Before the buyout, Toy “R” Us had a debt of $1.86 billion, but the debt rose considerably with the new owners, peaking at $5 billion. Private companies give the notion that they swoop in to save a struggling retail chain, but maybe they hasten their demise. The private companies rely on leverage buyout policy where they buy a struggling company at a cheap in the hopes of selling it at a profit on a later date. CITATION Cov18 \l 1033 (Covert) These opportunistic tactics lead to rush decisions because, in order to make considerable profits, the new owners needed to pump in cash, and that’s where the need to acquire loans comes in. With sales stalling and the great effects recession of 2008, the new century provided a whole new world. Toy “R” Us failed to adapt to the new conditions, and it got outdone by its competitors, Amazon, Walmart, and Target.
Toy “R” Us categorically named its main competitors for making them go out of business. They cited that the retail chains discounted their products significantly at the time Toy “R” Us was trying to recover, leaving them unable to compete. This is because Walmart, Target, and Amazon have an array of products that they sell; thus, they can afford to significantly slash their prices for toys on holidays for promotional purposes. Toy “R” Us, on the other hand, relies on toy sales for profit; therefore, they cannot heavily discount their merchandise. In 2016, Amazon recorded the biggest turnover of baby and toy products in the United States, with $2.16 billion in online sales. Walmart was second with $1.3 billion in sales the same year. Toy “R” Us was third with its relatively lower turnover of $912 million...