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Despite the title and the focus on the form of financing, none of the facts in the article even suggested to me that the company would be in any better shape if

Despite the title and the focus on the form of financing, none of the facts in the article even suggested to me that the company would be in any better shape if it had used equity financing rather than debt. It sounds, rather, like an unprofitable business that no one in their right mind would give any more money. If someone thinks they can figure out how to make a workable business out of big box toy stores, it sounds like the name is for sale.

hn_throwaway_99 8y ago
It at least sounds plausible to me that you could make a toy store a "destination" business if you did something to differentiate it from Amazon: kids parties, video game tournaments, something. You'd have to transform what it means to be a "toy store". Of course, that takes a lot of money, and with Toys-R-Us' debt load there was no way they could have afforded that.
- Analemma_ 8y ago
  I don't know if it scales up to big box stores, but this– plus adding food/café– is what a lot of game and hobby stores have been doing, and it seems to be working. There at least five stores like this in the Seattle area (2 of Café Mox, Meeples, etc.) and they seem to do good business.
  - yourapostasy 8y ago
    Of more interest is will this scale up culturally. Going in this direction at scale means monetizing physical socialization. I've observed this while touring Tokyo, where the society and culture has accepted eye watering residential real estate prices with accompanying micro-sized residences by American standards, in exchange for scads of commercially-run spaces used for social activities. Socialization there seems to take place outside of people's homes, and in restaurants, bars, and other commercial venues. These venues seem predominantly mom and pop sized and run in the non-tourist areas, small, and affordable. I have no idea if that will translate into American urban culture; I can see cases made for Millennials and post-Millennials embracing this model and rejecting it. I don't see it happening in the suburbs, much less exurbs. For this business model to work at scale, it would have to be embraced ubiquitously, but I'm not convinced there is a lot of space left to scale into after Starbucks got there first in so many locations.
jwlato 8y ago
You're missing the key piece: Toys R Us didn't go into debt for any good business reason, it was bought by a private equity firm and loaded with debt it didn't need. This is how private equity works: 1. A PE firm uses a combination of other people's money (limited partners a.k.a investors) and debt to buy a company. 2. The PE transfers the debt to the company's books. This way, if the company goes bankrupt the PE fund isn't liable for that debt. 3. The PE firm charges millions of dollars in fees for providing management services. This way the PE firm makes money regardless what happens to the business. Toys R Us was profitable before it was bought and saddled with debt that was essentially used to purchase it's own business.
- JumpCrisscross 8y ago
  > Toys R Us was profitable before it was bought “In 2004, after years of flat sales and falling profits, the Toys R Us board of directors put the company up for sale” [1]. Then, over “the next five years, sales at Amazon quadrupled to $34 billion”. Toys ‘R’ Us was bought as meagre profits fell and right before Amazon went for them. Blaming this outcome on the debt load is inaccurate. [1] https://www.google.com/amp/s/www.marketplace.org/amp/2018/03/06/business/toys-r-us-and-how-retail-downturn-story-about-debt https://www.google.com/amp/s/www.marketplace.org/amp/2018/03...
  - HappyRobot 8y ago
    The article you reference blames the debt load. > To compete, Toys R Us would have had to invest significantly in its website and stores. But the retailer was using most of its available cash to pay back its debt. Yes, profits were falling crazily, but the company was still profitable. Without the debt load, they could've spent some time losing money while they pivot to a new business strategy. The debt load really prevented them from trying anything except surviving as long as they could.
    - JumpCrisscross 8y ago
      > they could've spent some time losing money while they pivot to a new business strategy There is zero evidence, in the history of Toys 'R' Us or their failed competitors, that another strategy would have worked. More likely? It would have limped along until the next recession. In any case, I see no reason to blame capital structure when a simpler explanation abounds: Amazon taught people to buy toys online.

hn_throwaway_99 8y ago

It at least sounds plausible to me that you could make a toy store a "destination" business if you did something to differentiate it from Amazon: kids parties, video game tournaments, something. You'd have to transform what it means to be a "toy store". Of course, that takes a lot of money, and with Toys-R-Us' debt load there was no way they could have afforded that.

Analemma_ 8y ago
I don't know if it scales up to big box stores, but this– plus adding food/café– is what a lot of game and hobby stores have been doing, and it seems to be working. There at least five stores like this in the Seattle area (2 of Café Mox, Meeples, etc.) and they seem to do good business.
- yourapostasy 8y ago
  Of more interest is will this scale up culturally. Going in this direction at scale means monetizing physical socialization. I've observed this while touring Tokyo, where the society and culture has accepted eye watering residential real estate prices with accompanying micro-sized residences by American standards, in exchange for scads of commercially-run spaces used for social activities. Socialization there seems to take place outside of people's homes, and in restaurants, bars, and other commercial venues. These venues seem predominantly mom and pop sized and run in the non-tourist areas, small, and affordable. I have no idea if that will translate into American urban culture; I can see cases made for Millennials and post-Millennials embracing this model and rejecting it. I don't see it happening in the suburbs, much less exurbs. For this business model to work at scale, it would have to be embraced ubiquitously, but I'm not convinced there is a lot of space left to scale into after Starbucks got there first in so many locations.

jwlato 8y ago

You're missing the key piece: Toys R Us didn't go into debt for any good business reason, it was bought by a private equity firm and loaded with debt it didn't need. This is how private equity works: 1. A PE firm uses a combination of other people's money (limited partners a.k.a investors) and debt to buy a company. 2. The PE transfers the debt to the company's books. This way, if the company goes bankrupt the PE fund isn't liable for that debt. 3. The PE firm charges millions of dollars in fees for providing management services. This way the PE firm makes money regardless what happens to the business. Toys R Us was profitable before it was bought and saddled with debt that was essentially used to purchase it's own business.

JumpCrisscross 8y ago
> Toys R Us was profitable before it was bought “In 2004, after years of flat sales and falling profits, the Toys R Us board of directors put the company up for sale” [1]. Then, over “the next five years, sales at Amazon quadrupled to $34 billion”. Toys ‘R’ Us was bought as meagre profits fell and right before Amazon went for them. Blaming this outcome on the debt load is inaccurate. [1] https://www.google.com/amp/s/www.marketplace.org/amp/2018/03/06/business/toys-r-us-and-how-retail-downturn-story-about-debt https://www.google.com/amp/s/www.marketplace.org/amp/2018/03...
- HappyRobot 8y ago
  The article you reference blames the debt load. > To compete, Toys R Us would have had to invest significantly in its website and stores. But the retailer was using most of its available cash to pay back its debt. Yes, profits were falling crazily, but the company was still profitable. Without the debt load, they could've spent some time losing money while they pivot to a new business strategy. The debt load really prevented them from trying anything except surviving as long as they could.
  - JumpCrisscross 8y ago
    > they could've spent some time losing money while they pivot to a new business strategy There is zero evidence, in the history of Toys 'R' Us or their failed competitors, that another strategy would have worked. More likely? It would have limped along until the next recession. In any case, I see no reason to blame capital structure when a simpler explanation abounds: Amazon taught people to buy toys online.