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Though this may have something to do with Amazon (and retail generally trending online), it does appear that the big culprit here were Bain Capital (and its par

Though this may have something to do with Amazon (and retail generally trending online), it does appear that the big culprit here were Bain Capital (and its partners) who took it private in 2005 via leverage buyout and ladened Toys r Us balance sheet with untenable debt from thereon. Apparently, they were paying $500M in interests alone per year vs. reinvesting capital in growth of their offline stores or online retail. I personally feel that, similar to bookstores which as seen a resurgence in neighborhood mom & pop stores, while Amazon will continue to dominate, a lot of smaller toy retailers (both online and offline) will spring up to take Toys r Us' space.

pm90 9y ago
I just don't understand the people/institutions that give loans to such entities when a simple analysis would show how burdened by debt they are... are these investors really that stupid to loan money at unsustainable rates?
- rb808 9y ago
  2005 was a different age, both in the shopping world and finance.
  - ComputerGuru 9y ago
    LBOs still happen, unfortunately.
- quickthrower2 9y ago
  Stupid? The investors are loaning someone else's money. They probably isolate it legally so if the loan defaults they are not personally liable and it doesn't affect any other investments. The money isn't hard earned. It isn't someone's hard sweat-earned savings invested. It is debt. Debt generally just expands the money supply.
atourgates 9y ago
Toy stores are a _great_ example of opportunity for brick and mortar. Just like book stores, they operate in a space where curation, discovery and the physical experience adds real value. The town I grew up in has a great independent toy store, and I make it a point to shop there every time we're in town. Every time I find something unique that I would have never looked for on Amazon, and often I'm hooked by the tactile act of playing with something that couldn't be fully replicated online. As an interesting aside, this particular store[1] fought for its right to keep their mural (which was awesome but violated city codes) all the way to the supreme court[2]. They lost, but you've got to admire the chutzpa of someone willing to do that. [1] http://www.inlandoctopus.com/ http://www.inlandoctopus.com/ [2] http://www.seattletimes.com/seattle-news/city-paints-over-walla-walla-octopus-sign/ http://www.seattletimes.com/seattle-news/city-paints-over-wa...
- rb808 9y ago
  >Every time I find something unique that I would have never looked for on Amazon, and often I'm hooked by the tactile act of playing with something that couldn't be fully replicated online. You're absolutely right. The result usually is though that the kid finds a toy they like then puts in on their Birthday/Christmas wishlist from where the Santa buys from Amazon. I like to think I never do this, but if the price is much higher even I have a limit. I think that manufacturers should sell to physical toy stores at a lower price, and actively make sure online price is the same or higher than instore. but I dont how easy this is to police or even if is legal in some countries.
  - ringaroundthetx 9y ago
    > I like to think I never do this, but if the price is much higher even I have a limit. Really? You rationalize going to a brick and mortar international franchise simply because it is physical, instead of going to an online international franchise? Thats the biggest stretch of "buy local" that I've ever been exposed to.
    - Naritai 9y ago
svantana 9y ago
> a lot of smaller toy retailers (both online and offline) will spring up to take Toys r Us' space Why would anything take its space? It's still a highly valuable brand, that I'm sure the next owner(s) will want to leverage to the fullest.
- icelancer 9y ago
  >>It's still a highly valuable brand Is this true? I don't really connect the brand with value anymore. I think that legacy was firmly in the 1980s-1990s. There's some value there, but I doubt it is highly valuable.
  - debacle 9y ago
    I don't believe so. Toys R Us makes most of their money during the holiday season, and most of their stuff is overpriced crap. They're regularly 20-30% more expensive than Target, which in itself is already overpriced compared to BezosCorp.
dabockster 9y ago
> Bain Capital Obligatory Colbert video. https://www.youtube.com/watch?v=rSLGt0-bHIA https://www.youtube.com/watch?v=rSLGt0-bHIA
guelo 9y ago
Which is a great way for vulture capitalists to steal money from a company. I've seen it before: 1. Take out a giant loan and use it to buy a company by offering slightly more than it's worth. 2. Transfer the loan to the company's books. 3. You now own a company and it didn't cost you anything! You get to be the CEO or sit on the board. And take nice fat bonuses. 4. The company now has to pay off the loan it used to buy itself from operating revenues. So you regrettably have to announce layoffs and closures. 5. Eventually the once-great limping company is killed off, enters bankruptcy, and the company is liquidated to pay off your original loan What I don't understand is how it is legal or why investors/banks go for it.
- slapshot 9y ago
  Because it doesn't work that way? The banks that fund the "giant loan" in #1 put in covenants preventing any payments to the equity investor (who has to put in their own money) from paying out on the equity until all the debt has been paid off. This is not their first rodeo. The nature of the covenants varies a lot between industries, but the general rule is that the banks won't lend into the deal unless they are guaranteed to get their money back out first (maybe the CEO gets a salary, but it's all specified in the debt documents upfront). That's almost the definition of leveraged finance. If you want to criticize the leveraged buyout model, a stronger critique is whether the equity investor is putting 10 bets down, where each has a 10% chance of a >10x return, which puts 9 companies at risk.
  - mediaman 9y ago
    The covenants still typically allow the private equity investor to do a 'recap' (i.e., issues themselves a dividend) while still having the debt outstanding. This would come with restrictions, such as balance sheet ratios and interest coverage ratios. What the PE player would want to do is do the leveraged buyout, cut expenses to boost EBITDA, reduce working capital demand (create cash) by lengthening payables, collecting extended debts, and cutting inventory or selling off excess assets, and then once interest coverage is up from the EBITDA boost, issue a recap as big as the covenants allow to get much of the original equity risk off the table. Then they see if they can grow it, or sell it off, to get their multiple. Sometimes it works, sometimes the company goes through bankruptcy (ch 11) instead. It's not whether it always works, it's whether it works on average. The results have higher variance due to the higher leverage but it doesn't make it wrong.
z2600 9y ago
I'm a Star Wars collector and parent who shops at TRU. Beyond debt, the stores are mismanaged the same as most other old-school retailers that are having problems. For the last Force Friday (the day all the stores get new Star Wars toys and people go out at midnight to purchase), there were numerous reports of TRU's opening at midnight with almost zero new inventory. How does that happen, it's a planned date set months in advance. My TRU also has $200 items that have sat on the shelves for over 2 years.
gist 9y ago
> who took it private in 2005 via leverage buyout and ladened Toys r Us balance sheet with untenable debt from thereon You are not taking into account the changing habits of kids as a result of both the iphone and ipads or equivalent. Kids don't view toys the same way that they did prior to 2007 onward and neither do parents. I grew up in a day and age where getting a chance to have a toy was a big deal (and only happened a few times per year at that). Today kids can play games and be entertained with a digital device. It's hard to even compare to whatever projections that were done with the leveraged buyout.
- coredog64 9y ago
  With three kids, my wife and I used to buy Lego at every opportunity. It was also an easy gift idea to give to grandparents. My kids haven't played with Lego for years. They enjoy doing it Minecraft or one of a zillion other Steam games that offers the same build-it-yourself functionality as Lego.
  - rosege 9y ago
    And Lego's not doing so well either https://www.nytimes.com/2017/09/05/business/lego-sales-toys.html https://www.nytimes.com/2017/09/05/business/lego-sales-toys....
starik36 9y ago
Same thing happened to iHeartMedia (formerly ClearChannel). Bain Capital took it private via the leveraged buyout and now the company is burdened with $18B debt and is likely to declare bankruptcy soon.
jobu 9y ago
> Though this may have something to do with Amazon (and retail generally trending online) Online shopping plus theres a growing trend to spend money on experiences instead of things. We've switched to buying our kids things like climbing lessons or horse camp instead of toys.
KKKKkkkk1 9y ago
Yeah, so Bain made a bad decision when they bought Toys `R' Us and took on a lot of debt right at the moment when Amazon was about to enter the business. Now they lost their investment. Why do I get the sense that Bain is being cast as a villain in this story?
- chrisbennet 9y ago
  Bain didn't take on the debt, Toys R Us did. Here's how the Bain play book works: - Buy company's and strip them and lay off workers - saddle company with massive dept (leveraged buyout) - extract large fees - sell company at profit Later, the company, weaked by dept often goes bankrupt. http://www.motherjones.com/politics/2011/09/mitt-romney-bain-capital-debate/ http://www.motherjones.com/politics/2011/09/mitt-romney-bain... "Here’s how a private equity fund such as Bain Capital works: It picks a successful company and then takes it over with a leveraged buyout (LBO). The money borrowed from a bank to pay off the owner or stockholders does not become the debt of Bain Capital. It becomes the debt of the company that was taken over." https://sandiegofreepress.org/2012/07/how-mitt-romney-drove-companies-bankrupt-raided-pension-funds-and-paid-himself-handsomely/ https://sandiegofreepress.org/2012/07/how-mitt-romney-drove-...
bobwaycott 9y ago
This is definitely Bain’s standard playbook.
throwawaymanbot 9y ago
There are quite a few instances of Bain Capital types loading debt upon a corporate structure. Destructive Capitalism. Total Shame.
makomk 9y ago
Yeah, here in the UK Smyths Toys (a large out-of-town toy retailer that first entered the UK market a decade ago) seems to be doing doing a roaring trade these days and expanding rapidly, Toys R Us not so much. I believe Smyths are still owned by the original family that founded it too.

pm90 9y ago

I just don't understand the people/institutions that give loans to such entities when a simple analysis would show how burdened by debt they are... are these investors really that stupid to loan money at unsustainable rates?

rb808 9y ago
2005 was a different age, both in the shopping world and finance.
- ComputerGuru 9y ago
  LBOs still happen, unfortunately.
quickthrower2 9y ago
Stupid? The investors are loaning someone else's money. They probably isolate it legally so if the loan defaults they are not personally liable and it doesn't affect any other investments. The money isn't hard earned. It isn't someone's hard sweat-earned savings invested. It is debt. Debt generally just expands the money supply.

atourgates 9y ago

Toy stores are a _great_ example of opportunity for brick and mortar. Just like book stores, they operate in a space where curation, discovery and the physical experience adds real value. The town I grew up in has a great independent toy store, and I make it a point to shop there every time we're in town. Every time I find something unique that I would have never looked for on Amazon, and often I'm hooked by the tactile act of playing with something that couldn't be fully replicated online. As an interesting aside, this particular store[1] fought for its right to keep their mural (which was awesome but violated city codes) all the way to the supreme court[2]. They lost, but you've got to admire the chutzpa of someone willing to do that. [1] http://www.inlandoctopus.com/ http://www.inlandoctopus.com/ [2] http://www.seattletimes.com/seattle-news/city-paints-over-walla-walla-octopus-sign/ http://www.seattletimes.com/seattle-news/city-paints-over-wa...

rb808 9y ago
>Every time I find something unique that I would have never looked for on Amazon, and often I'm hooked by the tactile act of playing with something that couldn't be fully replicated online. You're absolutely right. The result usually is though that the kid finds a toy they like then puts in on their Birthday/Christmas wishlist from where the Santa buys from Amazon. I like to think I never do this, but if the price is much higher even I have a limit. I think that manufacturers should sell to physical toy stores at a lower price, and actively make sure online price is the same or higher than instore. but I dont how easy this is to police or even if is legal in some countries.
- ringaroundthetx 9y ago
  > I like to think I never do this, but if the price is much higher even I have a limit. Really? You rationalize going to a brick and mortar international franchise simply because it is physical, instead of going to an online international franchise? Thats the biggest stretch of "buy local" that I've ever been exposed to.
  - Naritai 9y ago

svantana 9y ago

> a lot of smaller toy retailers (both online and offline) will spring up to take Toys r Us' space Why would anything take its space? It's still a highly valuable brand, that I'm sure the next owner(s) will want to leverage to the fullest.

icelancer 9y ago
>>It's still a highly valuable brand Is this true? I don't really connect the brand with value anymore. I think that legacy was firmly in the 1980s-1990s. There's some value there, but I doubt it is highly valuable.
- debacle 9y ago
  I don't believe so. Toys R Us makes most of their money during the holiday season, and most of their stuff is overpriced crap. They're regularly 20-30% more expensive than Target, which in itself is already overpriced compared to BezosCorp.

dabockster 9y ago

> Bain Capital Obligatory Colbert video. https://www.youtube.com/watch?v=rSLGt0-bHIA https://www.youtube.com/watch?v=rSLGt0-bHIA

guelo 9y ago

Which is a great way for vulture capitalists to steal money from a company. I've seen it before: 1. Take out a giant loan and use it to buy a company by offering slightly more than it's worth. 2. Transfer the loan to the company's books. 3. You now own a company and it didn't cost you anything! You get to be the CEO or sit on the board. And take nice fat bonuses. 4. The company now has to pay off the loan it used to buy itself from operating revenues. So you regrettably have to announce layoffs and closures. 5. Eventually the once-great limping company is killed off, enters bankruptcy, and the company is liquidated to pay off your original loan What I don't understand is how it is legal or why investors/banks go for it.

slapshot 9y ago
Because it doesn't work that way? The banks that fund the "giant loan" in #1 put in covenants preventing any payments to the equity investor (who has to put in their own money) from paying out on the equity until all the debt has been paid off. This is not their first rodeo. The nature of the covenants varies a lot between industries, but the general rule is that the banks won't lend into the deal unless they are guaranteed to get their money back out first (maybe the CEO gets a salary, but it's all specified in the debt documents upfront). That's almost the definition of leveraged finance. If you want to criticize the leveraged buyout model, a stronger critique is whether the equity investor is putting 10 bets down, where each has a 10% chance of a >10x return, which puts 9 companies at risk.
- mediaman 9y ago
  The covenants still typically allow the private equity investor to do a 'recap' (i.e., issues themselves a dividend) while still having the debt outstanding. This would come with restrictions, such as balance sheet ratios and interest coverage ratios. What the PE player would want to do is do the leveraged buyout, cut expenses to boost EBITDA, reduce working capital demand (create cash) by lengthening payables, collecting extended debts, and cutting inventory or selling off excess assets, and then once interest coverage is up from the EBITDA boost, issue a recap as big as the covenants allow to get much of the original equity risk off the table. Then they see if they can grow it, or sell it off, to get their multiple. Sometimes it works, sometimes the company goes through bankruptcy (ch 11) instead. It's not whether it always works, it's whether it works on average. The results have higher variance due to the higher leverage but it doesn't make it wrong.

z2600 9y ago

I'm a Star Wars collector and parent who shops at TRU. Beyond debt, the stores are mismanaged the same as most other old-school retailers that are having problems. For the last Force Friday (the day all the stores get new Star Wars toys and people go out at midnight to purchase), there were numerous reports of TRU's opening at midnight with almost zero new inventory. How does that happen, it's a planned date set months in advance. My TRU also has $200 items that have sat on the shelves for over 2 years.

gist 9y ago

> who took it private in 2005 via leverage buyout and ladened Toys r Us balance sheet with untenable debt from thereon You are not taking into account the changing habits of kids as a result of both the iphone and ipads or equivalent. Kids don't view toys the same way that they did prior to 2007 onward and neither do parents. I grew up in a day and age where getting a chance to have a toy was a big deal (and only happened a few times per year at that). Today kids can play games and be entertained with a digital device. It's hard to even compare to whatever projections that were done with the leveraged buyout.

coredog64 9y ago
With three kids, my wife and I used to buy Lego at every opportunity. It was also an easy gift idea to give to grandparents. My kids haven't played with Lego for years. They enjoy doing it Minecraft or one of a zillion other Steam games that offers the same build-it-yourself functionality as Lego.
- rosege 9y ago
  And Lego's not doing so well either https://www.nytimes.com/2017/09/05/business/lego-sales-toys.html https://www.nytimes.com/2017/09/05/business/lego-sales-toys....

starik36 9y ago

Same thing happened to iHeartMedia (formerly ClearChannel). Bain Capital took it private via the leveraged buyout and now the company is burdened with $18B debt and is likely to declare bankruptcy soon.

jobu 9y ago

> Though this may have something to do with Amazon (and retail generally trending online) Online shopping plus theres a growing trend to spend money on experiences instead of things. We've switched to buying our kids things like climbing lessons or horse camp instead of toys.

KKKKkkkk1 9y ago

Yeah, so Bain made a bad decision when they bought Toys `R' Us and took on a lot of debt right at the moment when Amazon was about to enter the business. Now they lost their investment. Why do I get the sense that Bain is being cast as a villain in this story?

chrisbennet 9y ago
Bain didn't take on the debt, Toys R Us did. Here's how the Bain play book works: - Buy company's and strip them and lay off workers - saddle company with massive dept (leveraged buyout) - extract large fees - sell company at profit Later, the company, weaked by dept often goes bankrupt. http://www.motherjones.com/politics/2011/09/mitt-romney-bain-capital-debate/ http://www.motherjones.com/politics/2011/09/mitt-romney-bain... "Here’s how a private equity fund such as Bain Capital works: It picks a successful company and then takes it over with a leveraged buyout (LBO). The money borrowed from a bank to pay off the owner or stockholders does not become the debt of Bain Capital. It becomes the debt of the company that was taken over." https://sandiegofreepress.org/2012/07/how-mitt-romney-drove-companies-bankrupt-raided-pension-funds-and-paid-himself-handsomely/ https://sandiegofreepress.org/2012/07/how-mitt-romney-drove-...

bobwaycott 9y ago

This is definitely Bain’s standard playbook.

throwawaymanbot 9y ago

There are quite a few instances of Bain Capital types loading debt upon a corporate structure. Destructive Capitalism. Total Shame.

makomk 9y ago

Yeah, here in the UK Smyths Toys (a large out-of-town toy retailer that first entered the UK market a decade ago) seems to be doing doing a roaring trade these days and expanding rapidly, Toys R Us not so much. I believe Smyths are still owned by the original family that founded it too.