$5 billion dollar debt cripples Toys R Us

Long standing toy chain, Toys R Us has filed for bankruptcy as it struggles to compete with e-commerce giants like Amazon. To help stabilise the chain, a US judge has approved a bankruptcy loan in excess of $2 billion to be awarded to the firm. Thanks to the loan, Toys R Us will be able to prepare for the upcoming Christmas period. Many have cited a failure to remain competitive in the era of online shopping as a large factor in their recent problems.

Battle of the Marketplace

Toys R Us was once a market leader, arguably THE market leader when it came to purchasing the must-have toy of the season. However, the advent of mass online marketplaces, offering a quick and easy purchasing experience has made it harder for Toys R Us to stay in the game.

Toys R Us is experiencing the same struggles as many retailers, with the digital era revolutionising how we interact with the world around us. The internet may be an infinite space but it is highly populated and highly competitive. Many online-only retailers are thriving, passing on savings made from a lack of physical premises to consumers. In an age where the majority of consumers are very tech savvy and never more than a few feet from a mobile device, the mobile user journey has become a priority for savvy firms.

Furthermore, frequent discounts on next day and even same day delivery are proving extremely popular with consumers- as evidenced by Amazon Prime. Large online superstores also provide consumers with a one stop shop for all their needs, often with discounts applied when related products or bulk orders are processed.

Reminiscent of Blockbuster?

Analysts have pointed to the toy chains failure to offer competitive online services as one of the primary reasons behind their current financial crisis. A failure to embrace technology has condemned many a previously successful firm of late, as new innovations continue to render previous many ways of interacting with consumers almost obsolete. A key example of this can be found in the tale of Blockbuster, who filed for bankruptcy back in 2010.

Established in 1985, Blockbuster enjoyed 20 years of success. At its peak in 2004, the company employed 84,300 people worldwide. Yet, they failed to anticipate the upcoming desire for on-demand video services. They even turned down the opportunity to buy a then-fledging Netflix for $50 million back in 2000.

In 2016, Netflix made a net income of $187 million with a further $13.6 billion in assets and $2.7 billion in equity. It is one of four main internet firms dominating the market, along with Facebook, Amazon & Google. Collectively, they are often referred to as FANGs in investment banking circles. All have used tech and digital offerings to innovate, leading to rapid expansion.

 

Toys R Us has failed to keep up, much less innovate. The firm recently unveiled plans to overhaul the consumer experience and service. However, at the moment, it is unclear how much of this will be focused in store and how much will be invested online.

How will this affect its global operation?

The petition for bankruptcy has only been made in the United States. The company does not expect this to affect its operations in other parts of the world such as the UK. Those in Australia and its joint partnership in Asia will also remain unaffected.

 

Toys R Us is the latest in a string of organisations who are now feeling the effects of failing to anticipate changes in how service is delivered. In our sector, we have continuously seen resistance to embracing tech. However, we firmly believe that technological innovation has its place here at AGL. It’s why we have incorporated Simply Invest into our offering, giving consumers a way to set up an online portfolio within 30 mins. That said, the tacit knowledge of our advisers and face-to-face meetings will always remain at the core of our operation. To get in touch with us, pick up the phone and call 0141 348 7710 or get in touch here.