Toy tycoon submits bid to save Toys ‘R’ Us
It’s still a longshot, but some Toys “R” Us stores may live to see another day.
Isaac Larian, the billionaire founder and CEO of MGA Entertainment, whose products include Bratz dolls, Little Tikes and LOL Surprise, put in a formal bid of $675 million to buy 274 U.S. Toys “R” Us’ stores. He also put another $215 million to buy Toys “R” Us’ 82 stores in Canada. The bid comes as the chain is in the process of liquidating its U.S. operations.
The funds to purchase the stores will come from Larian’s own coffers, additional investors and bank financing, the privately held MGA stated. It added that the bid amounts were determined after careful due diligence by Larian, speaking with multiple investors and third-party experts.
Larian’s bid faces several challenges, not the least of which is whether toy brands would want to work with a retail chain that is owned by the CEO of another toy brand. According to the Wall Street Journal, Larian has said he would not be involved in the day-to-day operations of Toys “R” Us if his bid succeeds.
Larian previously had started a campaign on the crowdfunding website GoFundMe to raise $1 billion to save the bankrupt chain. The longshot effort brought in pledges for about $200 million.
“Every day that goes by, the value of Toys “R” Us declines and more people lose their jobs,” Larian said. “I did my part and now it’s up to the other side to accept this offer. If they do, the real work will begin.”
Larian shared his vision for the embattled toy retailer, saying the stores would be like a “mini-Disneyland.”
“We will make Toys “R” Us an experience in and of itself; a fun and engaging place where families can spend an entire day,” he said.
In other Toys “R” Us news, the company received a commitment from its Taj noteholder group for $80 million in incremental debtor-in-possession financing to strengthen its liquidity and support the working capital needs of its stores in Asia and Central Europe.
Toys ‘R’ Us gets financing to support stores in Asia and Europe
Toys “R” Us is not disappearing from the retail landscape in the immediate future — at least not outside of the U.S.
The bankrupt retailer, which is in the process of liquidating its U.S. operations, has received a commitment from its Taj noteholder group for $80 million in incremental debtor-in-possession financing. The funds will strengthen the retailer’s liquidity and support the working capital needs of its operations in Asia and Central Europe.
Toys “R” Us noted that its Asian and Central European operations already have sufficient liquidity to fund their current operations. The new funding gives the operations greater flexibility to grow their footprint and build inventory for the 2018 holiday season.
“This additional financing further positions our Asian and Central European operations for continued success,” said Dave Brandon, CEO, Toys “R” Us. “We appreciate the ongoing financial support and look forward to continued positive relationships with our vendors.”
The company said it has received interim approval of the incremental DIP financing from bankruptcy court.
Analysis: Too many of Bed Bath & Beyond stores are a mess
The one seemingly good piece of news coming out of Bed Bath & Beyond’s latest results is that total sales rose by 5.2%. However, this success is blunted by the fact that this year the quarter contained an additional week of trade.
When this is taken into account, and when other metrics are assessed, there is no getting around the fact that trading at Bed Bath & Beyond is poor. Comparable sales remain in negative territory, meaning that they have now been on the slide for a full year. The excuse of a tough prior period cannot be used, as in Q4 of 2017 same-store numbers rose by a mediocre 0.4%.
Worryingly, despite the extra week of trade, the company is still posting reduced profits. At net income level, some of this is down to tax adjustments. However, that mitigation cannot be used to explain away the declines in gross and operating profit which fell by 0.7% and 21.6% respectively.
All of this comes despite the fact that the retail market in general and the home category, in particular, have been performing well. The blunt truth is that Bed Bath & Beyond simply hasn’t been up to the job of converting this momentum into commercial success. In our view, there are at least a couple of reasons for this.
The first is poor operational standards. Too many of Bed Bath & Beyond’s stores — especially older ones — are a mess. They are a hodge-podge of product, tightly crammed into a space that is largely devoid of inspiration. This makes them hard and sometimes unpleasant to shop.
As much as Bed Bath & Beyond might think that such an approach creates the excitement of a treasure hunt, the evidence shows this is not the case. Many customers come into Bed Bath & Beyond on a mission with particular products in mind. This means their shopping approach is focused, rather than leisurely or curious. Unfortunately, stores do not facilitate this. Nor do they stimulate or encourage such mission-based shoppers to casually browse and make impulse purchases.
The second issue is service which, in some locations, leaves a lot to be desired. At peak times, lines can be long, and it can be hard to find associates to assist on the shop-floor. Our own customer data shows that this area of dissatisfaction has been steadily increasing, and we believe it is starting to lose Bed Bath & Beyond sales. It is also pushing some shoppers online, which is not a bad thing per se, but it does have economic ramifications.
The imbalance in BBB’s growth, with digital outpacing physical, has created pressure on the bottom line. Online sales, which have grown strongly, are less profitable due to higher shipping costs — a dynamic that has not been helped by BBB’s generous free shipping threshold. Meanwhile, store-based sales declines have reduced the productivity and profitability of the brick and mortar operation.
Profit is also affected by Bed Bath & Beyond’s discounting and its rather slapdash approach to coupons and vouchers. As much as we recognize this has played an important historical role in the company’s success, we also believe that its dependence upon it is now a symptom of a rather poor retail strategy and questionable execution.
We recognize that the company is making progress with newer stores and that it is pushing services like wedding lists. However, it needs to improve operational discipline and execution if it is to turn the tide of poor performance.