The failure of Toys ‘R Us to successfully reorganize in Chapter 11 sent shockwaves throughout the retail world and the restructuring community. Saddled with unsustainable debt and unable to chart a viable path forward, the company – in bankruptcy since late 2017 – conducted going-out-of-business sales and closed most of its more than 700 stores this summer. As part of the wind-down process, the debtors scheduled an auction to sell their existing intellectual property, including the name, website, and, of course, their celebrated brand mascot, Geoffrey the Giraffe.
But last week the debtors cancelled the intellectual property auction and announced their intention to reorganize around “a new, operating Toys “R” Us and Babies “R” Us branding company that maintains existing global license agreements and can invest in and create new, domestic, retail operating businesses under the Toys “R” Us and Babies “R” Us names, as well as expand its international presence and further develop its private brands business.”[1]
According to a press release, the reorganized company will be owned by a group of the debtors existing secured lenders, and “will control a portfolio of intellectual property that includes trademarks, ecommerce assets and data associated with the Toys “R” Us and Babies “R” Us businesses in the United States and all over the world, including a portfolio of over 20 well-known toy and baby brands such as Imaginarium, Koala Baby, Fastlane and Journey Girls. The reorganized company will own rights to the Toys “R” Us and Babies “R” Us brands in all markets globally, with the exception of Canada. It will also become the licensor of the brands to the company's existing network of franchisees operating in countries across Asia, Europe and the Middle East, and in South Africa. In addition to continuing to service these markets, the new owners are actively working with potential partners to develop ideas for new Toys “R” Us and Babies “R” Us stores in the United States and abroad that could bring back these iconic brands in a new and re-imagined way.”
The possible resurrection of Toys “R” Us may be welcome news to toy vendors who seek a viable brick-and-mortar alternative to Wal-Mart. But whether a reimagined Toys “R” Us can compete in a market dominated by Amazon remains to be seen. The retailer’s next act will face headwinds almost immediately, not only because Amazon and Walmart have already begun to fill the void left by this summer’s store closures, but also because it is unlikely to be able to launch its reimagined concept before the 2018 holiday season, the most critical time of year for toy sales.
But there may be a unique niche for Toys “R” Us and it is one that should not be underestimated. While online sales offer expediency and value, they cannot match the in-store experience that a specialty toy retailer could provide. The same is true for big-box retailers: Walmart and Target offer the convenience of a one-stop shop, but few customers would describe the shopping experience they offer as “magical.” A new Toys “R” Us built around in-store promotions, games, activities, and experiences for children – a hybrid of retail and entertainment – would fill a void in the industry. Let the games begin.
