Toys R Us has proposed closing about one-fifth of its U.S. stores, calling the move a “critical component” of its plan to emerge from bankruptcy.
In court documents, the retailer said its management and advisors had conducted an extensive performance analysis of all its stores and concluded that up to 182 locations were “operating at sub-optimal performance levels.”
If approved by a bankruptcy court judge, closures of those underperforming stores would begin early next month, with the majority happening in mid-April.
“The reinvention of our brands requires that we make tough decisions about our priorities and focus,” Toys R Us CEO David Brandon wrote Tuesday in a memo to customers. “The actions we are taking are necessary to give us the best chance to emerge from our bankruptcy proceedings as a more viable and competitive company.”
Toys R Us filed for Chapter 11 bankruptcy protection in September, succumbing to a massive debt burden and falling sales amid competition from big-box stores and online retailers. Walmart offers the lowest prices in the toy category and Amazon offers a far broader selection of products.
Although its numbers have been shrinking, Toys R Us still sells about 20% of the toys bought in the U.S., according to Stephanie Wissink, an analyst at Jefferies.
The company said the stores slated for closure are a “drain on liquidity.” They generated $925 million in sales and $2.4 million of EBITDA over the 12 months ended Dec. 31, 2017 but an “overwhelming majority” have negative sales trends.
“The store closings are a critical component of the go-forward business plan,” Toys R Us said in the court papers, adding that it may need to close additional stores following the conclusion of lease negotiations with landlords.
According to the Los Angeles Times, “Analysts have said that to compete with big-box chains such as Wal-Mart Stores Inc. and Target Corp. and with e-commerce giant Amazon.com Inc. … Toys R Us needs to improve its store experience and its website, and that it must hire well-trained employees who are knowledgeable about the products.”