Toys R Us or Toys R Bust?

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Toys R Us or Toys R Bust?

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Author Mark Richards

Less than a day after you read this article Toys R Us – once an essential part of Christmas shopping for so many families – could be facing administration in the UK and the potential loss of 3,200 jobs. What has gone wrong? How many other companies will face the same fate? And is all my fault?

My children are 24, 22 and 19: and yes, they still send us a Christmas list. It comes by e-mail, complete with links: we click the links, the credit card winces and two days later Amazon delivers.

But wind the clock back 15 years and no Christmas was complete without Mum and Dad making the pilgrimage to Toys R Us. We would wander up and down the aisles – swords, guns, forts and footballs would go into the basket – and that would be 50% of the Christmas shopping done.

Toys R Us was as much a part of our family’s Christmas as carol singing, the school nativity play and a carrot left out for Rudolph.

But very shortly after you read this Toys R Us could be Toys-R-Bust.

What has gone wrong?

Toys R Us, arguably the world’s largest store chain, was founded in the 1950s and has 1,600 stores around the world. But in September of this year, it filed for bankruptcy protection in the US and Canada after running up $5bn (£3.7bn) of debt as it struggled to compete with companies like Amazon in the age of internet shopping.

The company wanted time to restructure its long-term debt and – at the time – said that the vast majority of its stores were profitable and that businesses outside North America would not be affected.

Now it looks as though that is not the case, with its 110 stores in the UK facing imminent closure.

What is the problem in the UK?

Alongside the protection from bankruptcy in the US and Canada, Toys R Us was also seeking to re-structure in this country and was doing this through a CVA – a company voluntary agreement. The problems have come because one of the company’s biggest creditors is its own pension fund, and the need to meet its liabilities (actual and potential) to previous and current employees.

The company’s future in the UK is now in doubt after the Pension Protection Fund (PPF) said it would vote against the company’s rescue plan – arguing that its remit is to protect pensions, not management. We have seen plenty of instances of companies restructuring at the expense of their pension funds, and the PPF told Toys-R-Us to put £9m into its pension fund in order to meet future pension liabilities.

The PPF has been working with the company’s administrators to make sure the CVA does not weaken the long-term position of the pension fund – hence the demand for £9m to be paid into the pension. If it is not paid in, then the PPF will vote against the restructuring, putting the future of Toys R Us in the UK (and its 3,200 staff) in doubt. The deadline for an agreement on the CVA is 11 am tomorrow, and one analyst has described the company’s position as being forced to choose between its current and previous employees. Does it keep trading at the expense of the pension fund? Or does it find the money for the pension fund at the expense of current trading?

The company’s negotiating position has not been helped by two consecutive years of big rises in executive pay. Labour MP Frank Field, Chairman of the House of Commons Work and Pensions Committee, has written to the company, asking how these could be justified when the company was making operating losses – and when it clearly needed to take care of employees’ pension benefits.

How have people reacted to the news?

You would have thought that a company like Toys R Us would have had the public on its side. In fact, the response to the news on Twitter was largely unsympathetic

Sad to hear about Toys-R-Us. But they didn’t change. Amazon came and took it all off them. We don’t live in 1999 any more

Classic example of a business unwilling to change a single thing about itself. Top brass assumed they could stay on top for ever and not get overtaken. See Nokia.

But the British buying public didn’t escape criticism either:

Toys-R-Us are going bust. No point complaining. When was the last time you went in there instead of ordering off Amazon?

Is Toys R Us a sign of things to come?

As someone else wrote on Twitter. Toys-R-Us? Used to spend £200 there every Christmas. Now I spend it on Amazon. Don’t have to park. No crowds. Delivered to the door. #NoBrainer

…And as we have written many times through the year, ‘No Brainer’ just about sums it up. Who wants to find somewhere to park and struggle through the crowds when it can be done in ten minutes and delivered to your door or – as many companies are finding out – the increasingly overworked post room at the office.

But should we – as people on Twitter have implied – be recognising this and valiantly supporting our high street and out-of-town retail park? It is very hard to say ‘yes’ – especially when that means we would also be supporting overpaid management who ‘refused to change.’

But it may all be my fault

toys r us

I need to finish with a confession. The demise of Toys-R-Us may be all my fault. Rewind to 2002 as my wife and I dragged three weary and hungry children around our local Toys-R-Us as we searched for Bob the Builder toys and Bratz dolls. “You wait there with Alex,” my wife said, obviously fed up of my increasingly unhelpful suggestions. “Let him go in the ball pool. That should keep him quiet.”

Alex was four at the time. I was grateful for the break, popped him into the ball pool and found a chair to sit on.

“Daddy,” he said, two minutes later. “I need a wee.”

“Oh for Heaven’s sake,” I said. “I’ve just sat down. Just hold on to it for two minutes.”

“Daddy,” he said two minutes later, “I’ve done a wee in the ball pool.”

“Oh for Heaven’s sake,” I said again (or words to that effect). I grabbed him by the hand and we fled out of Toys-R-Us, leaving the next tired four year old to discover the awful truth.

I have lived with that guilty secret for 15 years. It feels good to unburden myself. But obviously, that is where it all started to go wrong. A couple of days later an angry mother would have been at a playgroup. “Well,” she would have said to all her friends, “You will never guess what happened to Alfie in Toys-R-Us…”

By | 2018-05-30T10:08:23+00:00 December 20th, 2017|Business|0 Comments

About the Author:

A previous financial services business owner, Mark is an experienced Journalist Speaker, Speechwriter and Coach. He has written for a number of websites related to the financial sector and won numerous awards. Mark has also published a number of books.

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