by Frank Chung, News.com.au
STRUGGLING toy retailer Toys 'R' Us has filed for bankruptcy.
The Wall Street Journal reports the company - the world's largest stand-alone toy retailer - has been squeezed by nervous suppliers demanding shorter terms and cash payments to make shipments ahead of the crucial Christmas season.
The bankruptcy filing came late on Monday night, following weeks of speculation.
More than 40 per cent of the company's revenue and 70 per cent of its operating profit is made in the fourth quarter, due to the heavily seasonal nature of toy sales.
Toys 'R' Us, which has more than 1700 stores globally including 30 in Australia, has been hit by falling sales and store visits due to competition from the likes of Amazon and Walmart, and the shift to electronic games and toys.
According to the WSJ, the company is also loaded with leftover debt from a buyout deal 12 years ago, and last-minute talks with holders of more than $US5 billion ($6.3 billion) of that debt to extend 2018 maturities failed to stave off bankruptcy.
The paper reports that Toys 'R' Us has hired restructuring experts, with advisers hunting for a bankruptcy loan in recent weeks to help fund operations while under chapter 11 protection.
Toys 'R' Us has been contacted for comment. The company is expected to update investors during an earnings call scheduled for next Tuesday 26 September.
"The issue underscores the broader structural challenges facing bricks and mortar retailers as the threat from deep discounters such as Walmart and online merchants like Amazon grows," BT Investment Management head of income and fixed interest Vimal Gor wrote in a client note earlier this month.
"Retailers are entering their most critical time of year as US shoppers prepare for the holiday season. This may explain the timing of the Toys 'R' Us potential decision to restructure its debt. The period typically requires a large investment in inventories to meet expected demand.
"As such, its restructuring suggests it would prefer to avoid running down cash on its balance sheet and try to avert being pushed to the absolute brink of collapse. The decision may also serve as the canary in the coalmine for other stressed retailers as they face their most intensive part of the working capital cycle."