Toys R Us files for bankruptcy protection in the US

Toy retailer, Toys R Us, has filed for Chapter 11 bankruptcy protection in the US and Canada after struggling with debt and although UK stores are currently unaffected the decision could have implications on UK toy manufacturers and suppliers ahead of the Christmas period

The toy store chain has been struggling due to $5bn (£3.7bn) debts and competition from retailers such as Amazon.

A US bankruptcy judge has approved a loan of more than $2bn to help Toys R Us stabilise and restructure before the upcoming Christmas season.

The company has said that its UK subsidiary is currently not affected and will be operating as usual. However, UK toy manufacturers and suppliers will have to come to a decision on whether they continue to deliver to Toys R Us or cut their losses before the UK stores start being affected.

Chris Newell, partner at Quantama said: ‘In a scenario like this it is important to understand the immediate needs of the business and whether it is worth continuing in the short term.

‘Clearly with Christmas around the corner, the business’s busiest period, it makes sense to continue trading and sufficient financial support appears to be available to get the retailer through this period.

‘The Chapter 11 procedure will in all likelihood be used to protect the business through this time but it will be most interesting to see what happens following the Christmas period when cash levels are at their highest.’

According to Quantama, suppliers to the business have issued serious concerns and outside of bankruptcy protection were only prepared to offer limited credit.

Newell said: ‘When dealing with any restructuring you need to seek to solve the root cause of the problem and if the business is to survive then significant changes will be required which could mean the closure of a number of non-performing Toys R Us stores for good.

‘The Chapter 11 protection will allow the breathing space for this review to take place and any required changes to be implemented.’

Toys R Us was acquired by a private equity team in 2005 for $6.6bn.

Amy Austin |Reporter, Accountancy Daily [2016-2019]

Amy Austin was reporter, Accountancy Daily and Accountancy magazine, published by ...

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