Toys R Us tells workers it will liquidate and sell or close all stores

Joan Verdon and Charisse Jones | The (Bergen County, N.J.) Record and USA TODAY

Show Caption Hide Caption 5 ways Toys R Us impacted our childhood Take a trip back to your younger days with one of the nation's best-known retail chains.

Toys R Us told employees Wednesday that it is planning to sell or close all of its U.S. stores, and that it will file liquidation papers this evening in advance of a court hearing scheduled for Thursday afternoon.

The company confirmed a Wall Street Journal report that Chief Executive Dave Brandon had shared the news with employees in a conference call. A spokeswoman for Toys R Us told The Record that Brandon told employees it was a sad day and that customers and others would be sad to see the brand disappear.

The decision to liquidate the company might not be the final chapter if a buyer surfaces who wants to buy some of the stores and operate them as an ongoing business. Many in the toy business believe there is room for a smaller version of Toys R Us.

Reports that Toys R Us was heading for a complete liquidation of its U.S. operations have been circulating for the past two weeks, with major news outlets citing sources familiar with the negotiations to keep the retailer alive.

More: If Toys R Us goes away, where will shoppers go?

More: 5 ways Toys R Us impacted our childhood

More: What went wrong with Toys R Us?

In January Toys R Us announced plans to close up to 182 of its U.S. stores, including 11 in New Jersey. It began going-out-of-business sales at those stores in February.

In the weeks that followed that announcement, reports from sources about the retailers situation got progressively worse, with insiders saying that vendors were not being paid and that employees were worried the company couldn't met its payroll.

Toys R Us, Babies R Us, To Close 182 Stores Toys R Us, a nostalgic favorite even as many shoppers moved to Amazon and huge chains like Walmart, plans to close up to 182 stores, or about 20 percent of its U.S. locations. (Jan. 24)

For most of its 70-year history, Toys R Us was the company that put other toy chains out of business. It outlasted KB Toys, Zany Brainy and Noodle Kidoodle. It bought, and later sold, FAO Schwarz.

But it rested on its laurels for too long, missing the sea change that Amazon was bringing to the retail industry, and ultimately it was felled by many of the same problems plaguing other traditional retail chains - too many stores, too large and outdated for the digital age - coupled with the more singular problem of a mountain of debt that it struggled to pay back.

Toys R Us shuttered dozens of stores as it attempted to deal with close to $5 billion in debt that resulted from a leveraged buyout in 2005.

That buyout, by private equity investors Bain Capital and KKR, and real estate trust Vornado, saddled Toys with crushing interest payments amounting to $400 million a year, just as the economy was entering its worst downturn since the Great Depression.

It was a steep fall for the retailer that grew out of a children’s furniture store founded in 1948 by returning World War II vet Charles Lazarus.

In 1957 Lazarus began opening toy superstores just as television was taking off, driving demand for TV-advertised hits like Slinkys and Barbie dolls.

Toys R Us became a powerhouse, the dominant big box toy store. But it began to falter as retailers like Walmart and Target began to move more aggressively onto its turf, offering toys, typically at lower prices to woo shoppers who might then fill their carts with their other, higher priced products.

Bain, KKR, and the executives put in place to turn Toys around after its buyout believed it would be relatively simple to get the retailer in good enough shape to launch a stock offering within three years and reap a healthy return on their investment. They expected they could cut costs and boost sales with more efficient management and better marketing.

But Toys R Us was plagued by missteps. It even tried to partner with Amazon to run its fledgling e-commerce operations at one point, but that move proved to be a tactical mistake, helping to turn Amazon into a fierce competitor who had learned how to beat Toys R Us by undercutting it on price.

Even in years when Toys R Us performed well, its massive debt payments ate into its profits and kept the company from investing in much need improvements to its stores and its online operations.

When the company filed for bankruptcy protection in September, CEO Dave Brandon promised the bankruptcy court, in his opening declaration, that “Toys R Us is here to stay.” Receiving debtor-in-possession financing and bankruptcy protection, Brandon said, would “ensure the iconic Toys R Us brand stays viable for years to come.”

Toy manufacturers and lenders who were owed money by Toys R Us, and landlords who owned store properties, backed nearly every request Toys R Us made as it attempted to reorganize. Toy makers said they needed the retailer to survive because it provided the best year-round showcase for all of their products, unlike retailers that only stock up on toys in November and December and shrink their toy aisles after the holidays.

Toys R Us also attempted to turn itself into a top destination once again, creating play areas where kids could try out toys, and introducing augmented reality to make its products come alive on screens as well as shelves.

But that wasn't enough to stop its slide. Last month, Toys R Us began going-out-of-business sales at roughly 170 U.S. stores, and said it could close other stores as part of its restructuring.

While it's been years since Toys R Us was considered the only game in town when it came to picking up a birthday gift or treat, the disappearance of the one-time icon is one that many shoppers are likely to feel.