Back in September, we reported how Toys R Us filed for bankruptcy in America. Unfortunately, those troubles have now spread across the Atlantic as Toys R Us has confirmed its plans to close a third of its permanent UK stores.
The struggling US retailer has stated that all the branches will remain open through Christmas and the New Year, but that up to 800 jobs are on the line and at least 26 of Toys R Us’ permanent UK stores will close from spring next year.
Steve Knights, managing director of Toys R Us UK said the company had to take ‘strong and decisive action’ as its largest warehouse-style stores opened in the 1980s and 1990s were ‘too big and expensive to run in the current retail environment.’
On December 21st, Toys R Us will ask its creditors to approve a company voluntary agreement (CVA), an insolvency procedure used by retailers to close loss-making stores. The process, which will reduce its rental bill partly by closing stores, is being handled by Alvarez & Marshal, a specialist adviser on corporate insolvencies.
“Like many UK retailers in today’s market environment, we need to transform our business so that we have a platform that can better meet customers’ evolving needs. The decision to propose this CVA was a difficult one, but we determined it is the best path forward to make essential changes to the business,” Knights said.
“Our newer, smaller, more interactive stores are in the right shopping locations and are trading well, while our new website has generated significant growth in online and click-and-collect sales “But the warehouse-style stores we opened in the 1980s and 1990s, while successful in the early days, are too big and expensive to run in the current retail environment. The business has been loss-making in recent years and so we need to take strong and decisive action to accelerate the transformation.”
Toys R Us is a subsidiary of the US chain, which filed for bankruptcy protection in September after running up $5bn of debts. The collapse came more than a decade after a $7.5bn leveraged buyout by private equity firms KKR, Bain and Vornado.
The UK business has been struggling for the same reason as its parent, as shoppers shun the large out-of-town sheds that are synonymous with the Toys R Us brand, in favour of shopping online. Meanwhile, competition from supermarkets and the likes of Argos has ramped up.
Toys R Us UK has been loss-making for seven out of the past eight years, with the most recent accounts filed at Companies House showing operating loss of £500,000 on sales of £418m in the year to January.