Can Toys R Us Survive by Learning Lessons from The Entertainer Toy Shop's Relative Success?

Companies / Retail Sector Jan 25, 2018 - 04:23 PM GMT

In December the British arm of Toys R Us came to within hours of going bust the followed it's american parent company's filing for bankruptcy protection in September 2017 which that triggered a downsizing programme through rapid store closures that are likely to see at least 200 of it's 866 US stores close in an attempt at reducing its $5 billion debt mountain which dates back to its leveraged buy out of 2005 that costs Toys R Us $400 billion a year in interest payments.

So it should not come as that much of a surprise that the British arm of Toys R Us with its 106 stores is heading towards a similar fate if not a 'Woolworth's' moment, as December saw the retailer teetering on the brink of collapse with the potential loss of 3200 jobs. The triggering factor for which is a £30 million black hole in its employees pension fund that had the Government Pension Protection Fund was demanding a near immediate payment of £9 million into to cover 3 years worth of past pension contributions, against which the distressed retailer was offering just £1.6 million as I covered in my following video at that time:

However, whilst Toys R US managed too get through December's crisis but still remains in deep distress, whilst The Entertainer Toy Shop chain is thriving with its much smaller stores more convientely located within popular shopping malls, rather than ToysRUs's huge stores in distant retail parks as the following video illustrates of one little girls birthday shopping trip to The Entertainer Toy Shop.

So if ToysRUs wants to survive then they clearly need to downsize and relocate to where the footfall is i.e. large shopping centres. Of course this would mean they would be competing against the likes of The Entertainer, and so given ToysRUs's huge debt mountain the retailer may not be in financial fit shape to perform such a costly transition from unprofitable mega-stores to smaller more convenient stores whilst at the same time having to service a huge debt mountain.

But the bigger problem is the INTERNET, which is slowly KILLING ALL RETAILER. So ultimately the same fate as Toys R Us awaits The Entertainer and the rest because bricks and mortar retailers just cannot complete against the online retail giants such as amazon with their far lower overheads. So ultimately Toys R Us trying to follow The Entertainer's lead would be just buying some time. Meanwhile The Entertainer continues to open new stores whilst Toys R Us closes theirs.

By Nadeem Walayat

http://www.marketoracle.co.uk

Nadeem Walayat has over 30 years experience of trading derivatives, portfolio management and analysing the financial markets, including one of few who both anticipated and Beat the 1987 Crash. Nadeem's forward looking analysis focuses on UK inflation, economy, interest rates and housing market. He is the author of five ebook's in the The Inflation Mega-Trend and Stocks Stealth Bull Market series that can be downloaded for Free.

Nadeem is the Editor of The Market Oracle, a FREE Daily Financial Markets Analysis & Forecasting online publication that presents in-depth analysis from over 1000 experienced analysts on a range of views of the probable direction of the financial markets, thus enabling our readers to arrive at an informed opinion on future market direction. http://www.marketoracle.co.uk

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