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Toys "R" Us files for bankruptcy protection in U.S.; plans to follow suit in Canada

TORONTO _ Toys “R” Us has filed for bankruptcy protection in the United States and says it intends to follow suit in Canada.

The company filed Chapter 11 documents late Monday in U.S. Bankruptcy Court in Richmond, Virginia and says its Canadian subsidiary plans to seek protection in parallel proceedings under the Companies’ Creditors Arrangement Act in the Ontario Superior Court of Justice.

Spokespersons for the retail chain in Canada and the U.S. told The Canadian Press on Tuesday that the company plans to issue a Canadian news release later in the day.

Toys “R” Us said the “vast majority” of its approximately 1,600 Toys “R” Us and Babies “R” Us stores around the world and its web portals continue to operate as usual.

The chain also said it had secured US$3 billion in financing to stay open while it restructures its outstanding debt and establishes a sustainable capital structure to invest in long-term growth.

Toys “R” Us is the latest brick-and-mortar retailer to struggle amid growing competition from online merchants and changing consumer preferences, with Sears Canada filing for CCAA protection this past June.

Ryerson University business professor Seung Hwan Lee says if Toys “R” Us had offered a better online offering “perhaps they could have avoided such fate.”

“A lot of physical stores and brick-and-mortar stores are struggling with this concept because Amazon is really taking over,” said Lee, an associate professor at the Ted Rogers School of Retail Management.

Meanwhile, children are increasingly gravitating towards digital toys rather than physical trinkets, he added.

“There are consumer trends that are changing from both the parents’ side and the children’s side, and I don’t know if Toys ”R“ Us was innovative enough to adapt to that,” Lee said.

This comes as Canadian retailer Mastermind Toys announced its continued expansion, with its 56th store opening in Orleans, Ont. on Tuesday. It said it plans to open four more stores across the country later this year, on top of the seven stores it had already launched in 2017.

Lee says some brick-and-mortar retailers have been able to lure in customers by offering a more interactive experience in their stores.

“Toys ”R“ Us, when you go in there, it looks exactly the same as, perhaps, 10, 20 years ago,” he said. “It’s aisles of toys, and you get to maybe try out some of the things, but there is nothing innovative about the physical store itself that draws people in.”

The global toy chain’s chairman and CEO Dave Brandon said in a statement Monday it was marking “the dawn of a new era at Toys ”R“ Us where we expect that the financial constraints that have held us back will be addressed in a lasting and effective way.”

Filing for bankruptcy protection “will provide us with greater financial flexibility to invest in our business … and strengthen our competitive position in an increasingly challenging and rapidly changing retail marketplace worldwide,” Brandon said in the announcement.

However, the company said its operations outside of Canada and the U.S., including some 255 stores in Asia, are separate entities and are not part of the Chapter 11 filing and CCAA proceedings.

Toys “R” Us, which is headquartered in Wayne, N.J., and has nearly 65,000 employees worldwide, says it is committed to working with its vendors to ensure inventory levels are maintained and products continue to be delivered.

Toys “R” Us said it expects to continue honouring return policies, warranties and gift cards, and customer loyalty programs should stay the same.

The move comes at a critical time leading into the holiday season that is crucial to retailers’ bottom lines. The company said it was “well stocked as we prepare for the holiday season and are excited about all of our upcoming in-store events.”

Toys “R” Us, a major force in toy retailing in the 1980s and early 1990s, started losing shoppers to discounters like Walmart and Target and then to Amazon. GlobalData Retail estimates that in 2016 about 13.7 per cent of toy sales were made online, up from 6.5 per cent five years ago.

While toy sales overall have held up fairly well, they are shifting toward discounters and online companies. U.S. toy sales rose 6 per cent last year on top of a seven per cent increase in the prior year, says NPD Group Inc., a market research firm. That was the biggest increase since 1999 and was fuelled by several blockbuster movies.

—With files from the Associated Press