MarketLine Blog

Toys R Us: Collapse Inevitable as Company Fails to Utilize the Power of the Internet

In recent months, well-established toy retailer Toys R Us has given repeated indications of the state of its finances. In September the US-based parent company announced that it entered into bankruptcy protection proceedings and is planning to close more than ten percent of its US stores in the near future. More recently the UK division made similar announcements, to close nearly a quarter of its stores soon after the New Year.

So the recent news that the Pension Protection Fund (PPF), one of the company’s largest creditors in the UK, was planning to block a vote on Toys R Us’s restructuring plan in the coming days, is concerning. The PPF has stated that it will, however, back the deal if the company agrees to invest £9m ($12.1m) in shoring up its pension scheme, and the PPF has claimed that this is likely to prevent a pension collapse in the future which will ultimately cost much more for all involved.

Toys R Us is likely, of course, to agree to these demands as the likely alternative is entering bankruptcy proceedings. Whether the company attempts to keep itself together for a few more years is irrelevant, however. The company has been bleeding millions of pounds in profits for the last few years and its revenue has been in negative growth since 2013. The toys and games retail market has, conversely, seen some moderate growth and is expected to grow by approximately 4% annually between 2017 and 2020, according to MarketLine forecasts, but the company’s major issue has come from its lack of engagement with online retailing.

The online retail market has grown rapidly for many years in the UK and stood at a value of approximately £45bn ($60bn) in 2016. Companies such as Amazon have made billions in profit by utilizing the power of the internet and have shifted consumer shopping habits away from physical stores and onto the internet. Toys R Us has lagged behind the market and is now bleeding market share to these newer, more dynamic companies.

The future of Toys R Us, both in the UK and in the US, is grim. It has been losing money for many years and unless it takes drastic action to utilize the internet and recapture a significant chunk of the market from the dominant players, collapse is inevitable.

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