Geoffrey the Giraffe is seen on the side of a Toys 'R' Us truck in 2005.

The toy emporium that Charles P. Lazarus envisioned has been reduced to dusty floors and empty shelves. Much has been said about the demise of the toy empire, which will shutter its U.S. stores for good on Friday. There have been fingers pointed at corporate raiders, Amazon and big-box stores. All contributed to its undoing. Ultimately, though, Toys R Us' collapse is a story of loyalty run dry. The store in its early days fostered devotion from customers and toymakers. In the end, it lost hold on both. Toys R Us' status as the most important toy store in town left it cavalier, if cocky at times, according to conversations with former employees, executives and industry insiders, who spoke to CNBC on the condition of anonymity. It didn't invest in its stores, even as it was adding to the fleet, leaving it vulnerable when new competition moved in. The story begins with Lazarus, the store's visionary who wanted the "R" written backward — an ode to childlike scrawl. Lazarus, who has been described as one of the great merchants of his time, expanded a baby furniture store he owned into a toy store. By 1978, he had created a toy superstore large enough to become a public company. In its heyday in the 1980s and 1990s, it was the most important toy store in the country, if not the world. Its strength grew as competitors Kiddie City and Child World went out of business.

Charles Lazarus Jacques M. Chenet | CORBIS | Corbis | Getty Images

Children across the world declared themselves a "Toys R Us kid." Parents spent their weekend mornings walking their kids up and down its aisles. Planners visited to stock up, preparing for months of birthday parties. "I bought all their presents and bikes from there," recalled Angela Corrigan, a New Jersey mom with two kids in college. "I remember the last time I walked in there ... I just walked in by myself and walked down the aisles feeling overwhelmed with emotions because my kids were too old for the store and our ritual was over." Eventually, in 1994, Lazarus passed the baton as CEO to Michael Goldstein, known for his adoration of toys that imbued his interaction with toymakers and store patrons. "Goldstein got to know nearly every start-up manufacturer and both he and Toys R Us wanted them to be successful," said Bob Moog, co-founder of toy company University Games. "Most companies, more than 10 years old, wouldn't be in business today it wasn't for Toys R Us, the first national account to give them a chance." But Goldstein's tenure was brief. He stepped down in 1998, leading the way to a revolving door of executives which included Robert Nakasone, who came from the grocery industry, and John Eyler, who came from FAO Schwarz. All the while Toys R Us added stores, emboldened by its position as the most important toy store in town. It did not take care of that store base though, neither pruning stores that weren't making money, nor putting resources toward those that were.

It also missed opportunities to make its stores nicer, cleaner and a destination for events. Toys R Us' failure to translate the joy of toys into something more tangible in its stores was one of its biggest mistakes. Another would be losing touch with the parents who shopped in its stores. "I remember when I first got there, walking into the first meeting with the executive committee thinking, 'This is going to be interesting. Our target audience is moms with kids, and I just walked into a room of guys with ties,'" said Warren Kornblum, who worked as chief marketing officer in the late 1990s and mid-2000s. Kornblum nonetheless recalled the thrill of being at the opening of Toys R Us' giant Times Square flagship, adorned with a Ferris wheel, just months after 9/11. "We were getting ready to open the doors, and I saw what seemed like hundreds of kids. I saw the excitement in their eyes and I thought, 'this is what Toys R Us is.'" "I think," said Kornblum, "we just lost that."

Competition bubbles

In its neglect, Toys R Us let the toys it sold become a commodity. That left it vulnerable when the most potent competitors it had to yet to face began to move in. The dot-com bubble arrived and EToys, the internet toys start-up founded in 1997, went public two years later. It had a market capitalization that surpassed Toys R Us. In need of a quick internet strategy, Toys R Us signed on to an expensive partnership with Amazon in 2000. The deal, one of the first of its kind, gave Amazon the exclusive rights to sell Toys R Us products on its website. Toys R Us paid it roughly $50 million a year, according to reports at the time.

A shopper exits the Times Square Toys 'R' Us store with his purchases in New York. Getty Images

Toys R Us had paid for exclusivity, but it didn't get it. Amazon created a marketplace where it began selling others' toy brands. Toys R Us sued Amazon to get out of the contract. But the legal wrangling set it back financially, and left it even further behind in its e-commerce efforts. By the time the lawsuit was settled, Amazon paid $51 million to end the suit. However, the damage was done and the retailer was way behind in the e-commerce fight. Then, came the discount chains. Walmart, Target and Kmart began going after the same moms who shopped in Toys R Us stores, slashing toy prices to bring them in. The core reason for Toys R Us existence — toys for kids — was being used by those bigger retailers as a way to get moms in the door, hoping they'd also spend on higher-margin products. Under assault, Toys R Us stock tumbled.

Private equity prey

All of this turned Toys R Us into perfect private equity bait. The mid-2000s were a boom for leveraged buyouts of retailers. The private equity funds were lured in by a combination of low interest rates, the recognizable names of the targets and the view that retailers' steady cash flow would continue forever. In 2006 alone, private equity firms spent $30 billion on leveraged buyouts of retailers — more than they had spent in total since 1998. A hotly competitive sale of Toys R Us put the company into the hands of a trio of investors: KKR, Bain and Vornado. Together they paid $6.6 billion for the store in 2005, a deal they financed largely with debt. They saw value in its real estate and an opportunity to aggressively expand in Asia. The hope was to revive the company and take it public, using those proceeds to pay down the debt. Though its owners took no dividends, that debt became an albatross for the toy retailer — sucking money out of it year after year. Toys R Us annually had to divert its cash flow to pay $400 million to service its more than $5 billion in debt, it later said in court filings. As the retail industry changed in ways no one expected, Toys R Us was crippled, unable to make the investments it needed. "These substantial debt service obligations impair the company's ability to invest in its business and future. As a result, the company has fallen behind," CEO Dave Brandon would tell the bankruptcy court.

Shoppers watching the ferris wheel at the Toys R Us store in New York City. Scott Mlyn | CNBC

Its historically strong baby business, Babies R Us, also came under attack. Parents soon discovered the luxury of buying their diapers online at Diapers.com. Then Bed Bath & Beyond acquired Buy Buy Baby, investing money Toys R Us didn't have into more modern stores. All the while, the toy industry was contracting. And, stunningly, children were getting older younger. That meant Toys R Us' target audience shifted to playing with computers, video games and tablets — no longer as interested in action figures or board games. From 2012 to 2017, the toy industry declined every year at a rate of 3.1 percent, according to data service IBIS World. The Toys R Us owners filed for an IPO in 2010. It never happened as the businesses continued to deteriorate. All three eventually wrote down the value of their investment to zero. This on a company they collectively poured $3.5 billion into over the course of their ownership.

Toy industry loses faith in its showman

Amid industry strain and change, there continued to be one widely accepted tenet: toymakers will unconditionally support Toys R Us. The industry needed its beacon to protect prices, provide shelf space and act as a showman. That tenet ultimately proved untrue. In July 2017, Toys R Us hired restructuring advisors to help it address the $400 million in debt coming due in 2018. It became clear, though, that lenders were spooked by the increasing number of retail bankruptcies. Chances of refinancing were slim. The company and its advisors began to craft plans for a prepackaged bankruptcy to come after the holiday season.

Employees assist shoppers at the check-out counter of a Toys R Us store in New York. Peter Foley | Bloomberg | Getty Images

In September, CNBC caught wind of the effort. It broke news to readers — and many toymakers — that Toys R Us was weighing bankruptcy. Bankruptcy risks rarely take industry insiders by surprise, but this one did. The retailer was on few, if any, immediate-term bankruptcy watch lists. Stunned toymakers pulled back. Weakened brands could not risk giving Toys R Us products it might not pay for. Many complained that Toys R Us was uncommunicative about what was happening. People close to Toys R Us agree it didn't communicate well, in part because the situation was so fluid, it was difficult to give a cohesive message. Within one week of the article's publication, nearly 40 percent of its vendors refused to ship product without cash on delivery. Within three weeks, the run on the bank catapulted Toys R Us into bankruptcy, forcing it to file without a plan to emerge and before the crucial holiday season. In bankruptcy court, Toys R Us played to its heritage, with its lawyers singing its famous jingle that they were "a Toys R Us kid." It told vendors and shoppers that it would use its bankruptcy financing to finally make the changes it needed to compete. All it needed was a solid holiday season to make it through to the other side. But loyalty to Toys R Us had frayed — for both consumers and the toymakers.

A number of brands limited their shipments to Toys R Us during the holiday season. Those that did ship are now on the hook for $450 million that might not get paid, according to The Wall Street Journal. The bankruptcy had left many manufacturers feeling battered. There were concerns Toys R Us' challenges were too fundamental, and it would not be able to escape the same fate twice. The big-box competitors, smelling blood in the water, slashed their prices, their final attack against the legendary retailer. In the 2017 Christmas season, shoppers chose discounts and convenience over Toys R Us. The retailer's fate was all but sealed. U.S. holiday sales produced earnings for Toys R Us that were $250 million below budget projections, court filings showed. It couldn't in good faith ensure it would be able to satisfy the terms of its bankruptcy loan. The company estimated it would run out of cash in the U.S. by May 2018. The weeks that followed the holidays included intense negotiations with its lenders but the conclusion soon became evident. Toys R Us would need to liquidate, a move expected to devastate the very toy industry it created, but which did not — or could not — come to its rescue. "I'm a believer there is no toys business without Toys R Us," said Isaac Larian, CEO of MGA Entertainment, the maker of Bratz dolls and L.O.L. Surprise toys. "The toy business is going to be very small without them."