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Tuesday, August 07 2018 03:48

The Long Goodbye for Toys 'R' Us in the U.S. Gets Drawn-Out Further as Details of a Rebrand that Never Happened Surface...

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As we enter August, I've now been writing about the collapse of Toys "R" Us (TRU) for 11 months - hard to imagine that last year at this time, the dominoes were just on the verge of tipping, as positive announcements like the launch of Spin Master's Rusty Rivets toys and the pending Force Friday II ahead of Star Wars: The Last Jedi were still taking place. Of course, by September things were looking bleak, and my "Toy Killer" feature about Bain Capital setting-up TRU to fail and fall - just as they did with KB Toys - was published just 12 days ahead of their filing for Chapter 11 Bankruptcy Protection. The eventual motion for complete liquidation just six months later would be a surprise to many, but the fact that the process of shutting down the company and selling off its assets keeps getting drawn-out is one that continues to surprise and pour salt in the wounds of many. I still hold firm in my belief that certain parties at the top never had any real intention of allowing Toys "R" Us and Babies "R" Us to continue here in the United States, and now it appears as though by the time it's all said and done, even the names my hold little value. Once again, the Intellectual Property Auction that would allow buyers to purchase the IP assets of the company has been postponed - this time until October. For those playing along at home, the initial plans for the auction were outlined back in May with the original plan set for a June 18 action... postponed until August 6, and now delayed once again. With each passing day, the TRU brand loses more and more of its value, but life without Toys "R" Us isn't necessarily as bleak as some may have thought. In fact, the NPD Group reports that toy industry sales are up more than 7% so far in 2018 with double-digit increases in the sales of youth electronics and dolls. Still, the saga of Toys "R" Us continues, and as I said during my panel appearance at San Diego Comic-Con, it's like an L.O.L. Surprise Doll in that there's just more and more to discover as each layer is peeled back...

One of the big reasons being cited for the auction delay is the complexity in which various international versions of Toys "R" Us were financially-connected to the U.S. operations. Toys "R" Us Canada, for example, was only forced to seek protection briefly due to the fact that it had been "loaning" money to its former U.S. parent. Fortunately for our friends to the north, their company was able to break free and be sold, and is already off to a great start as a 100% Canadian-owned retailer with a bright future ahead. Other outposts had been licensing the names and other IP, but there was other weirdness like the UK arm (closed earlier this year) allegedly funneling money to offshore accounts. As Toys "R" Us continued to either sell or dismantle its business around the world, questions had been looming about Spain and Portugal (now sold to a group of local investors), and most concerning - the healthy business in Asia and the Middle East. While attorneys for Toys "R" Us claimed they had "several" offers pledging over $1B for the Asian business, nothing has materialized, and now creditors are pitching a debt swap or "credit bid" to acquire the company for $760M. So where did all of those other bidders suddenly disappear to?

The Wynne Declaration:

"...the events that took place before this Court were really the tip of the iceberg of a more tumultuous, in fact unprecedented, series of events." -- Attorney Richard L. Wynne

After recently suffering massive losses that were no doubt largely tied to Toys "R" Us and the $140M that they were owed by the retailer, Mattel submitted the "Wynne Declaration" on Sunday, August 6 (a busy day for TRU-related filings), a statement by attorney Richard L. Wynne, who has been serving as counsel for the largest unsecured creditor in the bunch. Mattel noted that in this mess they "wore two hats: one as co-chair to the Creditors’ Committee, and the other as an individual vendor, unsecured creditor, and ultimately administrative creditor in these cases."  In the declaration, Mattel agrees to a settlement that Wynne calls "in essence, the 'least bad alternative'" to potentially years of ongoing litigation in which only the lawyers and administrators stand to profit. 

In the hefty, 28-page document, Wynne offers further back-up to how Mattel and others such as LEGO and Huffy were blindsided by the filing for total liquidation, noting that Mattel had been involved in weekly discussions with Toys "R" Us leadership to help them revamp the company for future success. Some choice outtakes:

"When these chapter 11 cases began, Mattel was encouraged by the significant amount of debtor-in-possession financing the Debtors had secured, and the Debtors’ statements and projections that the funding would provide a 16 month “runway” for the reorganization effort. Looking down that runway, Mattel was very actively involved in the Committee’s efforts with respect to evaluating the Debtors business plan and restructuring options, working closely with the Committee’s financial advisors to develop proposals to enhance the Debtors’ online presence, to reduce and rationalize the Debtors’ store and distribution center footprint, to rejuvenate the remaining U.S. store operations and to explore the divestiture of certain overseas business units as going concerns..."

"...Until being informed at the beginning of March of the extent of the Debtors’ extensive business losses, and their concomitant sinking financial projections and existing and impending defaults, Mattel believed that there was a viable path for the Debtors to emerge from chapter 11 in the United States, and had been diligently seeking to work to support that goal.

"...Mattel (and other creditors) were frankly shocked when they learned in early March that the Debtors believed they had no choice but to immediately liquidate their U.S. operations. Having provided the Debtors with significant post-petition trade credit, as it was required to do under the parties’ critical trade vendor agreement, Mattel was markedly concerned about its ability to recover on its post-petition exposure (which included both trade receivables and unpaid critical trade payments). Specifically, Mattel had $45 million in scheduled payments that it was due to receive in March, including $13 million due by March 12, 2018, and was scheduled to ship approximately $16 million to the Debtors during March. Mattel had over $500,000 per day scheduled to be shipped on March 5, 6, 7 and 8, 2018. Those shipments still had to be made due to the terms of the Critical Vendor Agreement as the Debtors had not yet defaulted on their payment obligations, even though Mattel appeared certain to never receive payment for such goods."

As we saw earlier this year in statements by vendors such as Crayola and Basic Fun!, again the discussion comes up of when Toys "R" Us knew that they were done, and why leadership was maintaining the "business-as-usual" approach in having their buyers continue placing orders for upcoming selling seasons, knowing full well that the company would cease to exist?

More from the Wynne Declaration: "I specifically raised with Debtors’ counsel a number of critical issues for Mattel (and other similarly situated post-petition trade vendors), including (i) whether and for how long the Debtors had continued placing and accepting orders with Mattel and other vendors while knowing that they likely would not be able to pay for the goods produced and delivered, (ii) the amount of shipments that Mattel was obligated to make (in light of its critical trade agreement) notwithstanding the Debtors’ inability to pay for them, (iii) whether or not the Debtors would be notifying vendors generally about the seeming inability to pay for goods already shipped and received and (iv) what plans the Debtors had for goods in transit or yet to be delivered..."

"...Trade vendors were largely caught by surprise by the Debtors’ chapter 11 filings, as there was little to no warning, and, to make matters worse, the filing occurred when the vendors were ramping up shipments for the fall holiday season."

Toys R Us Rebrand

Another Rebrand that Never Happened:

Over the years, several possible rebrands for Toys "R" Us and Babies "R" Us were created both internally and externally, with some manifesting themselves in the form of new prototype and concept stores - some that opened as recently as October of 2017. As is fairly well noted by now, it was entirely possible for TRU to be reinvented and positioned for the future, but for the most part, the hands of those who could've actually made it happen were tied behind their backs by those steering the ship. One group late to arrive was Lippincott, a design and consultancy firm that's worked with brands like Nissan, Taco Bell, Starbucks and Walmart. They connected with Carla Hassan, EVP/CMO and Lee Walker, VP/Creative Director at Toys“R”Us and "reimagined the brand for a new generation of parents." Unfortunately, as Lippincott notes, "time ran out," but now they've issued a whitepaper that Fast Company called "a peek into an alternate future that could have been." Lippincott was hoping to reach "Parennials" - the one million Millennials that are becoming parents each year...

Babies "R" Us 2018 Rebrand

"For our Toys“R”Us reinvention to be successful, it would have to break through and connect with these new parents in a way no others had. That would mean competing against both ends of the market: with massive online retailers like Target and Amazon who compete on price and convenience, through to local boutiques that offer the personalized experience and trustworthiness many new parents seek." -- Lippincott

toys sxs 2 v1

They dissected the brand, and reimagined the backwards 'R'. Yes, Geoffrey was there, but joined by other "R-i-malls" as the team thought of new ways to inspire kids and grownups alike. See more of the beautiful concept work from the Lippincott team (including video) here.

While the Toys "R" Us that we grew up with is gone, this is an interesting look at how it could one day rise again... but perhaps its time to let go of the past and let something new take it's place. Some think that might be the right approach. Stay tuned...

James Zahn

James Zahn is not a journalist, nor a blogger, though he may be credited as such by others, or even accept the title... depending on the circumstance.  Instead, he considers himself largely to be an "entertainment and lifestyle writer," bringing 25+ years of experience in the entertainment and publishing industries into the family realm as THE ROCK FATHER™.

As a media personality, commentator, adventurer and raconteur, James now finds himself raising a pair young girls - The Rock Daughters™ - along with his wife from their Illinois home.

He is a member of The Toy Insider Parent Advisory Board, has contributed to The Toy Book and writes a regular Star Wars column - Transmissions from a Galaxy Far, Far Away for The Pop Insider. He also regularly serves as a Brand Ambassador and spokesperson for several Globally-recognized pop culture and lifestyle brands in addition to consulting for a number of toy manufacturers. 

Creatively, James has directed/edited music videos, lyric videos, and album trailers for bands such as FEAR FACTORY, has appeared as an actor in feature films and commercials, written comic books, and performed in bands. He currently serves as an artist manager and video director for PRODUCT OF HATE, whose debut album was released by Napalm Records in 2016, distributed by ADA/Warner Music in the U.S. with Universal Music handling global.

James and/or his work have been featured in/on CNN, FOX Business, NBC, ABC, WGN, G4, The Chicago Tribune, BusinessWire, Babble, Fangoria, Starlog and more. He's appeared as a music expert on CNN's AC360 alongside Anderson Cooper, and has been interviewed by Larry King. In the past he served as a writer for the Netflix Stream Team,  Fandango Family and PBS KIDS, penned articles for Sprout and PopSugar, and was a contributor to Chicago Parent.

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