Updating earlier reports, sources have told CNBC that retailer Toys ‘R’ Us could file for bankruptcy as early as this week.
The toy purveyor is facing trouble on at least two fronts. Most immediately, Toy ‘R’ Us has about $400 million in debt coming due next year, and about $5 billion in total debt, much of it accumulated in a leveraged buyout in 2005.
Servicing that debt has become more challenging as the company’s business has eroded thanks to competition from Amazon and Walmart, both of which have used discounted toys to attract shoppers.
Toys ‘R’ Us’s same-store sales dropped 1.4% in 2016. It has responded to the pressure by closing stores and shedding more than 10% of its corporate staff.
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A quickly-executed bankruptcy could be crucial to combating those headwinds, both in the short and longer term. With the winter holiday season approaching, CNBC notes that financial clarity could ensure that toy manufacturers continue to stock the shelves at Toys ‘R’ Us. (In a similar case, struggling retailer Sears has recently faced pressure from suppliers uncertain about its future.)
Longer term, reducing its debt load and other obligations through bankruptcy could make it easier for Toys ‘R’ Us to invest in its turnaround strategy. That plan includes creating more in-store events, building out its lagging digital presence, and focusing on movie tie-in toys.