Problem-Solving Application Case—Toys

R Amazon, Walmart, and Others, but Not
A new company, Tru Kids Brands, is now all that’s left of Toys-R-Us, the well-known toy retailer which declared bankruptcy and closed all of its
stores in 2017. The path forward for this new company is uncertain at best, as a result of the competitive forces that killed the old brand, but a
new CEO and leadership team seek to return to the playing field. This activity is important because it illustrates the important role that
organizational behavior principles can play in a surprisingly common situation – reviving a company that has gone through bankruptcy.
The goal of this activity is to get you to think critically about how what you’ve learned can apply to one of the most difficult situations faced by
any company in this textbook.
Read about the demise of Toys-R-Us and the current situation surrounding what’s left of the company. Then, using the three-step problemsolving approach, answer the questions that follow.
Toys-R-Us has long been known as a marquee toy retailer with giant 40,000 square foot stores and nearly every item desired or imaginable for
children (and some adults). A large percentage of Americans, as well as customers in international markets, can recall visiting a Toys-R-Us store.
Sadly however, even icons fail, especially when confronted with nearly $5 billion of debt, fierce online competition from Amazon and Walmart,
changing customer preferences (video games instead of conventional toys), and technology (e-commerce). Not even three billion dollars in
annual sales could surmount these challenges.
Sealed Fate
Some argue the company’s fate was sealed back in 2005 when Bain Capital took the company private and buried it in debt to do so. Toys R Us
never shed this burden.1
The Toys R Us scenario is a familiar one. The years prior to the great recession (2006-2008) private equity firms (PE),
like Bain and KKR, went shopping for retailers. They took the companies private by borrowing money for the purchase and planned to achieve
high returns by making them more efficient, selling off parts, or both, and in a period of a few years take them public again. (Note: PE firms
generally collect large fees associated with taking the companies public.)
However, the recession eroded the value of the retailer’s real estate and at the same time e-commerce exploded onto the market. Online sales
have more than quadrupled since 2007. For perspective, Neiman Marcus, another PE, debt-plagued retailer reaped 34 percent of total sales
online in 2017. These same factors also spurred the demise of other well-known brands, like Gymboree, Payless Shoes, and Sports Authority.

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