Toys R Us Plans to Close 20% of its U.S. Stores

Toys R Us Inc. is moving ahead with a plan of shutting roughly 20 percent of its U.S. stores, or 180 sites, and according to some analysts, this is just the beginning.

Toys R Us planning to close 20 percent of its stores in the U.S.

“We see this as the first phase of a more robust real estate cleanup effort at TRU,” Stephanie Wissink, an analyst, stated. “The move has been anticipated, but the size of the closure and the timing was heavily debated.”

Last September, the company filed for Chapter 11 bankruptcy protection, where the management laid out plans to open more stores but in a smaller format. However, a weaker-than-expected holiday season prevented that strategy from happening and the toy store increasingly risks lagging behind the likes of Amazon, Target, and Wal-Mart as its sales decrease.

As of today, Toys R Us operates around 880 stores, including those under the brand of Babies R Us.

Some of these stores are leased back to a separate entity created by the company known as Toys R Us Property Co., or Propco.

Meanwhile, a handful of the company’s locations are owned by real estate investment trusts including Kimco, Brixmor, and DDR. While a small portion of stores are directly owned by the chain.

“The open question in the Toys case is what the impact will be on the two Propco loans that will be impacted by such real estate rationalization,” said Charlie O’Shea, a retail analyst.

According to O’Shea, Toys R Us has borrowed money and secured loans with its physical assets, many of its shops today are still tied up in financing, which results in a somewhat conflicting situation as those shops go dark.

As for the rest of Toys R Us’ real estate not serving as collateral, O’Shea stated the he expects more closures to come as leases are ended and negotiations with property owners’ progress.

“There is no doubt that shuttering loss-making shops will allow the company to save money and focus its efforts on other channels and locations,” the managing director at GlobalData Retail, Neil Saunders, said in a report.

“Unless Toys R Us finds a way to become relevant to consumers, these store closures will do very little to ensure the future viability of the company,” Saunders added.

Meanwhile, Toys R Us announced that it is planning to invest more heavily on its website, loyalty program, and Babies R Us registry offering.

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