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Toys ‘R’ Us a company that we knew so well, a company that gave us all so many memories and a store that we all loved to go to when we were children has filed for bankruptcy in the United States- its biggest market. This bankruptcy was caused by many small problems that eventually coagulated into the current condition of the business.
But is this Toys ‘R’ Us bankruptcy a symptom of a much larger problem in the retail space. In the past few years retailers like Aeropostale, Payless ShoeSource, and Gymboree (Hirsch, 2017) have all declared bankruptcy. An increasing number of retailers are going out of business ever year. The main question that emerges from this is why?
The main dilemma that these companies face is that people no longer want to go to stores. In this age of technology its all about convenience and nothing beats the convenience of buying what you need online from your couch. Thus, it is imperative for companies to transition from brick and mortar stores to online sales. Companies like Toys ‘R’ Us and Aeropostale lose millions in wasted real estate(Hirsch, 2017). The online power of Amazon also represents a huge challenge for these retailers. With the extremely large market share and brand power that it possess it is almost impossible for Toys ‘R’ Us to compete. Large companies like Amazon are expanding into every retail space, like toys in this case, and are driving the prices down. With bigger companies following a strategy of predatory pricing it makes it harder for smaller to medium companies to survive. This raises another question, with larger companies driving out competition when is it time for the Governments to step in and protect economies from becoming oligopolies.
Another cause of the condition of Toys ‘R’ Us comes from the borrowing strategy used by many businesses. Even though in 2016 Toys ‘R’ Us made $460 million from selling toys the entire $46o million went in interest that needed to be paid on loans(MacIntosh, 2017). This sheds light on the issue of limited liability. The investors would never have agreed to pay $7.5 billion for Toys “R” Us if they’d had to borrow the money themselves. But they were delighted to make the company borrow it on their behalf while staying safe from any financial fall back.
In conclusion, the bankruptcy of Toys ‘R’ Us can not just be attributed the mistakes in strategy of the company itself but can be attributed to host of external problems that retail market currently faces. More and more people are moving away from malls and towards online retail greatly reducing sales of retailers. Continually the ” borrowing problem” that plagues the current economy in a way sets the fate of bankruptcy in stone for most companies.
Word Count: 450
Sources
Hirsch, L. (2017, September 19). Toys R Us files for Chapter 11 bankruptcy protection. Retrieved from https://www.cnbc.com/2017/09/18/toys-r-us-files-for-chapter-11-bankruptcy.html
MacIntosh, J. (2017, September 28). How risky business bankrupted Toys ‘R’ Us. Retrieved from http://www.cnn.com/2017/09/28/opinions/toys-r-us-risk-making-macintosh-opinion/index.html