According to CNBC, Toys R Us filed for Chapter 11 bankruptcy protection last September, where management laid out plans to, in effect, open more stores — just in a smaller format. But a weaker-than-expected holiday season thwarted that strategy, and Toys R Us increasingly risks lagging behind the likes of Walmart, Target and Amazon as its sales wane.
Today, in the U.S. alone, Toys R Us operates roughly 880 stores, including those under the Babies R Us brand. Many of these stores are leased back to a separate entity created by the company known as Toys R Us Property Co., or Propco. A handful of the retailer's locations are owned by real estate investment trusts including Kimco, Brixmor and DDR, and a smaller portion of stores are directly owned by the chain.
"The open question in the Toys case is what the impact will be on the two Propco loans that will be impacted by such real estate rationalization," Moody's retail analyst Charlie O'Shea said. As Toys R Us has borrowed money and secured loans with its physical assets, many of its stores today are still tied up in financing, O'Shea explained, resulting in a somewhat-conflicting situation as those stores go dark.
As for the remainder of Toys R Us' real estate not serving as collateral, O'Shea said he expects more closures to come as leases are terminated and negotiations with landlords progress. "There is no doubt that shuttering loss-making shops will allow the company to save money and focus its efforts on other channels and locations," Neil Saunders managing director at GlobalData Retail, told CNBC. "Unless Toys R Us finds a way to become relevant to consumers, these store closures will do very little to ensure the future viability of the company," Saunders said.
For the full article from CNBC, click here.