Toys R Us files for liquidation, likely spelling its end in the U.S.

Corrections & Clarifications: An earlier version of this story misidentified the type of meeting where the CEO’s speech took place.

Toys R Us, the toy superstore that became a dream factory for kids nationwide, said in a U.S. Bankruptcy Court filing Thursday that it must liquidate, a move that would close 735 stores, leave 33,000 people without jobs and wrap up a 70-year run for a once-beloved holiday shopping spot.

The chain, whose chipper mascot Geoffrey the giraffe beckoned families to stores, said poor holiday sales caused its final demise. Online sales had undercut the popularity of its stores, and rampant discounting from the likes of Walmart and Target shaved away profits.

Saddled with enormous debt and piling up losses, the chain said it had no choice but to shut down. "The stark reality is that the (chain is) projected to run out of cash in the U.S. in May," it said in its bankruptcy filing.

"I am devastated that we have reached this point," CEO Dave Brandon told corporate staff in a speech at company headquarters the day before.

Toys R Us said going-out-of-business sales would begin at all stores immediately.Gift cards can be redeemed for the next 30 days. Employees will be paid for "no fewer than 60 days," the filing said.

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Sad customers

The chain has been a critical part of the American retail landscape, one that still brings back fond memories for those who grew up around the store.

Dan Skinner of Naperville, Ill., in an email to USA TODAY, said he was awed by the size of the Toys R Us store that he used to visit growing up in Morristown, N.J.

"Toys and board games and bikes were stacked stories high," he wrote. "When you were 8 years old, those displays felt like skyscrapers." 

He couldn't wait to visit. 

"The drive over was always filled with anticipation. Typically we would go in celebration of a great report card or if I had birthday money to spend," he said.

Toys R Us said in its filing that its main lenders "have determined that the best way to maximize their recoveries is to liquidate the existing inventory in all ... 735 remaining U.S. stores and begin an orderly wind-down of the U.S. operations."

The company had initially hoped to be able to keep 400 stores open, according to the filing, but realized it didn’t have enough cash to preserve that many.

“Projected cash burn” according to the motion, was $50 million to $100 million a month, without even investing in any of the planned improvements to stores.

One sliver of hope: It said in the filing that it still hoped that 200 stores in the U.S. could be preserved in combination with its Canadian stores. It said is seeking a buyer for the Canadian operation.

Still, store fans were sad. 

An adult customer, Bobby Armes, tweeted that Geoffrey the giraffe played a big role in his kids' lives. 

"I remember that Geoffrey would give my children a phone call every year to wish them a happy birthday," tweeted Armes. "That was special, and it was very appreciated."

Holiday disaster

At a meeting Wednesday with corporate staff at the company's headquarters in Wayne, N.J., CEO Brandon said Toys R Us found itself "in serious default on our financing covenants" after a disastrous holiday season, according to a recording of the talk reviewed by The Record in Bergen County, N.J.  For Christmas 2017, earnings were about half of what the company might expect in a normal year.

The holiday results showed lenders that Toys R Us is "a company that consumes cash" for most of the year, and earns money only during the holidays. When the holiday period underperformed, investors became justifiably nervous, he said.

While U.S. operations are "subject to likely liquidation," Brandon said the Canadian, Central Europe and Asian divisions would be sold. At the court hearing, "There is going to be an invitation sent around the world that all of these assets are available."

If a buyer offers more than the liquidation value, there could be a sale.

Brandon also said the company would maintain the Babies R Us registry and the Web stores for the time being in hopes someone might want to buy that asset. 

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Born in a post-war baby boom

Toys R Us started as a children’s furniture store founded in 1948 by returning World War II vet Charles Lazarus. Taking advantage of the baby boom, Lazarus started opening toy superstores by 1957 as toy hits like Slinkys and Barbie dolls started hitting the market.

The chain's superstore concept triumphed as other chains with smaller stores and less selection fell. Yet Toys R Us finally was facing a foe it couldn't conquer: discounters like Walmart and online shopping dominated by Amazon. The digital era left it with too many stores.

Toys R Us shuttered dozens of stores as it attempted to deal with close to $5 billion in debt that resulted from a leveraged buyout in 2005 by private equity investors Bain Capital and KKR, and real estate trust Vornado.

'Here to stay'

When the company filed for bankruptcy protection in September, Brandon promised the court, in his opening declaration, that “Toys R Us is here to stay.”

Toy manufacturers and lenders who were owed money by Toys R Us, and landlords who owned store properties, backed nearly every request Toys R Us made as it attempted to reorganize. Toy makers said they needed the retailer to survive because it provided the best year-round showcase for all of their products, unlike retailers that only stock up on toys in November and December and shrink their toy aisles after the holidays.

Toys R Us also attempted to turn itself into a top destination once again, creating play areas where kids could try out toys, and introducing augmented reality to make its products come alive on screens as well as shelves. 

But that wasn't enough to stop its slide.

While it's been years since Toys R Us was considered the only game in town when it came to picking up a birthday gift or treat, the disappearance of the one-time icon is one that many shoppers are likely to feel.