As one of the leading figures of the toys industry since the late 20th century, the news of Toys ‘R’ Us filing bankruptcy to both the U.S. and Canadian government came as a surprise to many individuals. However, unlike Future Shop’s abrupt closure 2 years ago, Toys ‘R’ Us has announced that the vast majority of their stores will continue to function normally and that this filing is a proactive step to restructure its $5 Billion debt, generating more financial flexibility for investments and to ensure its inventory for the holiday season. Considering from a financial accountant’s perspective, the massive long-term debt on the balance sheet not only may repel potential investors but also bring a notable interest that may limit the company’s cash flow. However, with the newly obtained 200 million USD term loan and 300-million USD revolving credit facility provided by a group of investors led by JPMorgan Chase Bank, Toys ‘R’ Us Canada seems to be in an unfavourable, but maneuverable position. Analysts such as Seung Hwan Lee, a professor from Ryerson University has suggested that Toys ‘R’ Us’ old fashioned way of sales, or the ‘channels’ building block of the canvas model‘, is the main factor of the company’s decline. With the development of online sales, Amazon has taken an increasing significant role in the toys market, providing lower prices and more convenience in both browsing and receiving toys. On the other hand, retail stores such as Walmart has also brought a threat to Toys ‘R’ Us with their lower prices and convenience as parents can grocery shop while their child shop for toys. As suggested, Toys ‘R’ Us may need to improve its ways of communication, distribution, and sales. A possible model Toys ‘R’ Us may wish to consider is creating more interactive shops that provides toys and play areas to increase customer satisfaction and create an advantage over online shopping where one cannot physically experience the toys. Interestingly, despite criticize from analysts Toys ‘R’ Us’ Canadian subsidiary said in court documents that it is “performing well financially, with net earnings doubling and sales revenues increasing at a compounded annual rate of 5 per cent over the last three years”. Personally, I found that Toy ‘R’ Us did a fine job with keeping up with the increase in the demand of digital goods, as their shops provided various video games and game console for test play. Nonetheless, to recover its dominance in the toy industry it will need to use its new loans effectively to restructure its channels of communication, distribution, and sales.
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