Toys "R" Us Fallout Update: As Stores Close, Toys For Tots, other Charities Lose; Crayola, Funko and Others Cry Foul...

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As the liquidation of Toys “R” Us officially got underway last week, the saga has continued behind-the-scenes as shoppers began visiting stores in hopes of scoring a deal. For the locations that have just begun the wind-down, many felt disappointment when met with markdowns as low as 5% (game systems, LEGO) with most categories priced at just a 10% savings. While there were some higher discounts like 20% off on Easter items and bike accessories, other areas had no markdown at all – consumables like food and diapers. On the flipside, stores that began closing operations in February are nearly wiped-out, and I visited a few this past weekend. It was a sad scene at the Babies “R” Us in Vernon Hills, Illinois – set to close for good on March 31. My wife and I ordered baby furniture from that location back when our first daughter was born. Now, it’s a mostly-empty building where almost everything is for sale, surprisingly stocked with a lot of non-baby toys that I suspect were dumped on the first wave of closing stores in a warehouse purge. We picked up a couple of Flip Zee Girls (Jay at Play) that our little ones had been asking for. My big score was a stockpile of LR44 batteries – the button-style that many toys consume very quickly. Deals aside, I’d rather pay full price and have 33K jobs still intact. Elsewhere the fallout is starting to be felt.

At Toys “R” Us HQ in New Jersey, many departments have already begun going dark. Sources inside (who have been speaking to me on condition of anonymity) have spun tales of the closing, with each day bringing more groups who are leaving for the last time. If there’s any silver lining for the folks soon to be unemployed, a job fair was held inside TRU HQ with recruiters from other companies getting facetime with potential talent. Many staffers are still feeling blindsided by the sudden wind-down filing and subsequent death of founder Charles Lazarus on the eve of liquidation. Earlier this month it was still “business as usual” according to the executive team, and that’s a major issue in some of the most recent court filings.

An Omnibus Hearing scheduled for today (3/27) was cancelled, with all matters set to be heard adjourned until April 11, 2018 at 12pm Eastern time. Still, the filings have continued, and Crayola put forth a big one last Friday (download it here), one reported on by Reuters and subsequently picking up steam as other parties join. As of this writing, Funko, TOMY, Funrise, Summer Infant, Skip-Hop, The William Carter Company (Carter’s) and Oshkosh B’Gosh have all filed Joinders, and more companies are expected to follow in the days ahead.

In short, Crayola alleges that Toys “R” Us engaged in “irresponsible and potentially illegal behavior relative to Crayola” and other vendors. Keep in mind, TRU CEO David Brandon famously blamed the vendors for “not being supportive” in a meeting from which audio recently surfaced (hear it here).

From Crayola’s 3/23 filing: “Crayola continued to support the Debtors’ operations by shipping product on net-60 trade-credit terms through the 2017 holiday season. Although the Debtors sometimes were slow in paying Crayola for the product they ordered, they Debtors eventually paid Crayola for most of the merchandise they had ordered through the end of November 2017. Though, with the arrival of January 2018, the 2017 holiday season was basically at its end, Debtors’ orders to Crayola for new merchandise did not tail off. Rather, Debtors’ orders of additional merchandise rapidly accelerated beginning in early January 2018 and continued to accelerate through much of February 2018. In January 2018 alone, the Debtors placed orders to Crayola for, and subsequently received delivery of, nearly $1 million of additional merchandise. Further, from February 1, 2018 through March 8, 2018, Debtors ordered an additional $954,000 of Crayola merchandise. In total, Debtors have now failed to pay at least $2,332,010.62 (the “Administrative Claim”) owed to Crayola for goods shipped to and received by Debtors since the Petition Date, which amount includes approximately $1.97 million for goods that the Debtors ordered from Crayola on or after January 10, 2018.”

The other vendors joining Crayola have a similar plight, with Funrise noting that they’d shipped $1.35M in merchandise to Toys “R” Us through March 9, 2018 – just six days after which the wind-down motion was filed. Additionally, Funrise notes that testimony given on March 20th indicates that the true “financial condition of TRU was intentionally withheld from trade partners.” Carter’s goes even further, stating that TRU is using “free” merchandise from their unsecured vendors to pay back their secured lenders. Bottom line: Toys “R” Us is liquidating merchandise that they never paid for. It’s a mess, and it’s getting worse.

My sources inside TRU HQ confirm that they did indeed keep the orders flowing, and that was the instruction from Brandon and his team. As far as each department knew, the turnaround was happening, and they were already planning ahead with seasonal orders for the rest of the year, with many buyers having just attended the North American International Toy Fair in February. In the meantime, in-store events and future product launches were being planned. There were Easter Egg Hunts scheduled for this weekend, and TRU was planning to participate in the April launch of product for Lucasfilm’s Solo: A Star Wars Story. In that case, licensees such as Hasbro and Mattel had already shipped product… toys that are now not only on-shelves ahead of street date, but also being sold at liquidation prices. The only people who benefit by that is the eBay flippers.

As the story continues, there’s also another side that hasn’t been mentioned much: the charities. Toys “R” Us was a big supporter of numerous charities, and that’s on top of their own philanthropic arm, The Toys “R” Us Children’s Fund. During the holiday season, TRU was a major supporter of Toys For Tots, and other initiatives throughout the year have supported partners including St. Jude Children’s Research Hospital, Born This Way Foundation, Special Olympics and others. They’d also donated over $100M in product though a giving program administered by Good 360. Now these organizations will have to scramble to make up for the support that they’re now losing.

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