In: Finance
After years of slumping sales, Toys R Us filed Chapter 11 last September to relieve a $5 billion debt burden. It said it would use $3 billion in bankruptcy financing to revamp its stores. But on March 15, Toys R Us asked the bankruptcy court for permission to “begin an immediate and orderly liquidation” of its U.S. stores. Toys R Us’ principal creditors have determined that the best way to maximize their recoveries is to liquidate the existing inventory in all of the debtors’ 735 remaining U.S. stores and begin an orderly wind-down of the U.S. operation.
So, what factors do you think led to the demise of Toys R Us? Does filing for bankruptcy necessarily imply that a company will be liquidated? Why is the liquidation of Toys 'R' Us expected to have such a significant impact on Hasbro Inc. and Mattel Inc.? What will happen to the amounts owed by Toys R Us to Mattel, Hasbro, and others in liquidation?
1: There are various reasons as to why Toys R Us failed. Some of them are as follows.Having exclusive stores does not work anymore. People do not go out of the way to pick up toys due to easy availability of toys and online availability. There is excessive competition. There is a price war with respect to toys and people are not particular about the brands. As per research there is lack of attractiveness in the stores and lack of imagination in toys.
2. There are two main forms of bankruptcy which are liquidation and reorganization. Hence a company may be liquidated or it may also be reorganized and liquidation is not always the end result of bankruptcy.
3. Since Mattel and Hasbro Inc are major suppliers the bankruptcy of Toys R Us will put a great pressure on these companies as it will have to look for new buyers for its products. They will be directly affected with the sales decline due to the bankruptcy. Moreover they will not be able to recover the entire dues from Toys R Us.
4. The proceeds coming from liquidation will be distributed to the companies to whom amounts are due. Hence the companies will be able to recover their dues from the sales of assets of Toys R Us but this may or may not be settled fully.