You’ve probably heard by now that the death of Toys R Us is pretty much official now. After some time of news of bankruptcy and all that, it’s closing all its stores in the United States and United Kingdom. Maybe you’re reminiscing about the times you had in Toys R Us before you started buying everything online. Looking back and looking into the death of the retail giant however can reveal some interesting information.
Like a lot of people, Toys R Us used to be a staple of my childhood shopping and I have vivid memories of what it was like during the 90’s. It’s a Toy store but also a lot else — basically a Wal-Mart for “fun” stuff. I just now remembered Toys R Us is the first place where I started buying the Sonic the Hedgehog Archie comic I followed for about 20 years until its cancellation last year. But for many, Toys R Us was, for a time, a pillar of video games.
A Washington Post postmortem this week pointed out that this was pretty much intentional on the part of founder Charles Lazarus. Toys R Us got into video games not just to attract kids, but also adults who weren’t parents. “There is an increasingly fine line,” he said, “between where adult begins and child ends.” As far back as the 80’s he even realized video game software is where the real money was at.
Back in the day in my experience there was always a veneer of the near future in gaming at Toys R Us. It was usually the first place I came into contact with new consoles like the Nintendo 64 and GameCube. Even before that, it seemed to make a big deal out of advanced Super NES games like Donkey Kong County. It knew what was going to catch eyeballs. I remember passing by the store and seeing a giant Super Mario 64 poster draped across the front entrance, which seemed to state more than anything else the importance of what was happening in gaming at the time. Later, Toys R Us is where I first saw footage of Super Smash Bros. Melee and played the Star Wars Rogue Squadron II demo that sold me on a GameCube. I’m guessing for a lot of kids and tech people today that Best Buy is probably what’s taken over that role.
In more recent years, to be honest I’d only gone to Toys R Us when I read there were deals there. I’d heard from employees that it had been pretty empty in recent years except for Babies R Us, which apparently is where most of the company’s profits have come from as of late.
Of course it’s easy to hop to the conclusion that Amazon and online shopping in general killed Toys R Us, or even just an inability to improve in the face of competition. In the time since initial rumblings of the demise of Toys R Us though I’ve tried to read up on what apparently really took it down — private equity.
The Post piece above mentions it a bit but I’ll try to explain here as best as a layperson can: Around 2005 Bain Capital and some other investors borrowed a ton of money to buy out Toys R Us, and then depended on increasing the store’s profitability in order to pay back the debt from that buyout. That meant doing all sorts of cost-cutting measures, but the debt was paid down with money that could’ve been used to say, improve the store and website. Eventually it turned out Toys R Us simply couldn’t pay it off and is currently being liquidated. I think the original buyers and investors left the picture long ago after having sold back Toys R Us at some kind of profit. Before this Toys R Us was was running somewhere at or slightly above profit, and probably could’ve at least kept the ship afloat. A page at Seeking Alpha seems to sum up a lot of articles on what happened in more detail.
As far as video game retail goes, my instincts right now tell me Wal-Mart, Best Buy, and GameStop will just absorb what they haven’t already. I hear the toy industry however is already bracing for a gut punch.
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