Bankruptcy In Toys R Us Canada

The emergence of software gaming has led to a 4.4% decline in the $31 billion global toy industry1. Unable to capitalize on the changing consumer needs, many toy retailers in the United States and Canada have suffered from declining revenues and increased competition from e-commerce platforms, such as Amazon. Additionally, the increasing overhead and fixed costs have reduced margins and led to losses in market share for specialty retailers to e-commerce businesses.

The loss of competitive advantage, coupled with growing long term debt has forced Toys R Us to file for bankruptcy, putting the future of the most prominent toys retailer in jeopardy. Although the bankruptcy was filed by the American parent company, Toys R Us Canada has applied for credit protection, despite almost doubling net earnings in the last three years2.

Mattel and Hasbro, the largest toy manufacturers in the U.S, have backed the toy retailer, responsible for 11% and 9% of their sales respectively3,4. Toys R Us will benefit from renegotiating credit terms with them to ensure that they do not lose key suppliers to online competitors, such as Amazon.

The relationship between Toys R Us and Amazon has deteriorated in the past two decades. In 2000, they signed a ten year agreement to make Toys R Us the exclusive vendor of Amazon toys. However, the deal was called off in four years when Amazon allowed other toy manufacturers to sell through their platform. Unlike retail giant Target, who responded to a similar breach of contract in 2009 by investing $2.5 billion in e-commerce development, Toys R Us put in little effort to recover. The toy retailer waited over a decade before scaling their e-commerce efforts, as part of a $100 million three year