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Toys R Us

Toy, baby, and clothing retail store
Startup Cemetery
GENERAL INFORMATION
Category:
Entertainment
Country:
United States
Started:
1957
BUSINESS FAILURE
Outcome:
Bankruptcy
Cause:
Bad Business Model
Closed:
2021
FOUNDERS & EMPLOYEES
Number of Founders:
1
Name of Founders:
Charles Lazarus
Number of Employees:
+10,000
FUNDING
Number of Funding Rounds:
0
Total Funding Amount:
-
Number of Investors:
No Data

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If you grew up in the 80s or 90s, chances are you’re no stranger to Toys R Us. You might even have the beloved store’s jingle, featuring the slogan “I don't want to grow up, I'm a Toys R Us kid!” stuck in your head.

If you’ve followed the news over the years, you probably also know that Toys R Us has had its fair share of struggles since its golden age, resulting in the closure of all its global retail stores by 2021.

However, it would appear that Toys R Us isn’t ready to bite the dust for good, as it has since made a comeback through a partnership with US retail giant Macy’s. 

Let’s take a closer look at what happened with Toys R Us to better understand the company’s demise and comeback.

What Was Toys R Us?

Toys R Us was a toy, baby, and clothing retail store founded in 1957 by Charles P. Lazarus in Rockville, Maryland.

Toys R Us store

The company’s trademarked name, Toys R Us, is a stylized version of the phrase “toys are us.”

Toys R Us enjoyed much success for many decades as children’s toys and the technology behind them boomed through the 60s, 70s, 80s, and 90s. At its peak, Toys R Us operated 739 US-based stores and 750+ stores in foreign markets.

However, Toys R Us fell on hard times starting around the early 2000s, ultimately leading to the company selling and closing all of its brick-and-mortar stores, which we’ll go into more detail on below.

A Brief History of Toys R Us

Toys R Us founder Charles Lazarus saw an opportunity to capitalize on the post-war “baby boom” by selling baby furniture and other children’s goods.

In 1948, he founded a baby furniture store called Children's Bargaintown, which he later sold to Interstate Department Stores in 1966.

In 1957, he started a separate company focused solely on toys, thus leading to the founding of the first Toys R Us.

Over the next few decades, Lazarus was able to dominate the toy sales market by negotiating lucrative contracts and selling toys at prices 20% to 50% lower than competitors.

By 1978, Toys R Us had 72 stores and controlled an impressive five percent of the entire US toy market, resulting in profits of approximately $36 million that year.

In just five more years, from 1978 to 1983, Toys R Us more than doubled its number of stores and market share to 169 stores and 12.5% of the toy sales market. The company also expanded into selling children’s clothing during this time.

By the early 90s, Toys R Us dominated toy sales so much that it forced other popular toy retailers, such as Child World and Lionel, to file for bankruptcy, foreshadowing what would eventually come for Toys R Us itself.

Around this time, Toys R Us was also expanding into international markets, including Japan and Europe. By 1996, the company already had 55 international toy stores. Japan would go on to become its biggest overseas market.

However, the late 90s were also when Toys R Us started experiencing the first big problems, including major competition from other bargain retailers, like Walmart and Kmart, and a serious loss in court to the Federal Trade Commission (FTC). 

The FTC charged Toys R Us with leveraging its marketing power to force major toymakers to sell popular toys of the time only to Toys R Us and not to other large retailers, thus blocking them from fair competition and creating a monopoly.

Although Toys R Us would hang on through the ups and downs for another 20+ years, rising competition from internet retail giants, such as Amazon, and massive mounting debt, eventually forced Toys R Us to file for bankruptcy in 2017.

The company ended up selling or liquidating and closing most of its retail stores in foreign markets, including Asia and Europe, in 2018. For example, Irish multinational retailer Smyths bought many Toys R Us stores in Europe and rebranded them.

In the US and Canada, Toys R Us also began liquidation sales in 2018, permanently closing many of its locations that same year. The last two Toys R Us stores in business, in New Jersey and Texas, closed in 2021.

What Went Wrong With Toys R Us?

As we touched on above, Toys R Us began dealing with a series of struggles, mainly related to market competition, towards the end of the 1990s.

Although many people might wonder if Amazon killed Toys R Us, the first major competition it experienced was from affordable “big box” stores, such as Walmart, Kmart, Target, Costco, and others.

This competition gradually started to eat away at Toys R Us’s sales, and the company began racking up billions of dollars of debt, trying to maintain its stores and operations.

In 2000, Toys R Us partnered with Amazon in a 10-year contract, paying the eCommerce company $50 million a year plus a percentage of their sales to be the exclusive seller of toys and baby products on Amazon.

While this partnership was initially a successful one, it had major implications for the future of Toys R Us — instead of building their own eCommerce business, as they probably should have, Toys R Us was completely reliant on Amazon for online sales.

Amazon learned from its partnership with Toys R Us and eventually branched out and started working with competitors, which further hurt Toys R Us’s market share and online sales at a time when eCommerce was taking off.

If it weren’t for the massive debt Toys R Us had accumulated by the early to mid-2000s, perhaps the company could have kept up with the competition, but so much of their revenue was put into paying off debt that Toys R Us kept declining.

By the beginning of 2005, Toys R Us’s debt was downgraded to junk bond status, meaning that the company was likely to default and was given a low credit rating.

As a result of the lack of revenue available to reinvest in their stores and operations, the shopping experience for customers got worse and stores became understaffed and undermaintained.

By 2017, the toy industry and retail as a whole were on a decline, and Toys R Us couldn’t hang on any longer. The company announced that it was filing for bankruptcy in 2017, citing $5 billion in debt and costs of around $400 million a year just to pay that debt back.

Toys R Us started liquidating, selling, and closing its stores the following year, marking the end of a decades-long reign for the much-loved toy retailer that got its start in the years after World War II.

Toys R Us store closing

What Happened To Toys R Us in Canada?

Toys R Us’s operations in Canada were tied to its US operations and thus equally affected when the company filed for bankruptcy in 2017 and began liquidating and shutting down in 2018. 

Toys R Us sold its Canadian subsidiary and all related trademarks to Fairfax Financial, a Canadian financial holding company, in June 2018.

Fairfax Financial continues to operate 81 stores under the Toys R Us name across Canada.

What Happened To Toys R Us in Europe?

Toys R Us began shutting down its European operations, starting in the UK, where it had accumulated £15 million in unpaid taxes.

In March 2018, Toys R Us announced that all its UK branches would be holding liquidation sales and closing within six weeks.

Elsewhere in Europe, stores in Germany, Austria, and Switzerland, and the Toys R Us HQ in Cologne, were purchased by Smyths and rebranded.

PicWicToys replaced Toys R Us stores in France and was later bought by Smyths.

What Happened To Toys R Us in Asia?

Toys R Us Asia announced in November of 2018 that it had sold Asian operations of the brand to Fung Retailing, a Hong Kong-based partner that had previously managed most of Toys R Us’s Asian operations.

Fung Retailing continues to operate 470 Toys R Us stores in various Asian markets, including Japan, Brunei, China, Hong Kong, Malaysia, Singapore, Taiwan, and Thailand, as well as licensed stores in the Philippines and Macau.

What Happened To Toys R Us in Australia?

Toys R Us shuttered all of its Australian stores by August 2018. However, the brand returned to the country via a partnership with Hobby Warehouse and now has an Australian eCommerce website.

Why Did Toys R Us Shut Down?

Toys R Us filed for bankruptcy and closed all its stores mainly because of rising competition from big box stores and online retailers, billions of dollars in debt, and declining toy sales in general.

Competition From Big Box Stores and Online Retailers

Big box stores like Walmart, Kmart, Target, and Costco were already well established in the 90s (some were even older than Toys R Us), but these retailers were expanding rapidly towards the end of the decade and began offering lower prices on consumer goods, including toys.

As this happened, popular toymakers, like Hasbro and Mattel, started to sell just as many, if not more, toys through big box stores during this period as they were through Toys R Us.

The proliferation of these other retail giants at the end of the 90s and during the early 2000s was the beginning of the end for Toys R Us, as it gradually lost more and more market share to the brick-and-mortar competition. 

But the nail in the coffin for Toys R Us was the rise of eCommerce toy sales, especially through Amazon.

Toys R Us did attempt to launch its own eCommerce sales via Toysrus.com in 1998, but it ended up being a massive failure, especially after the company failed to deliver gifts on time during the Christmas shopping season of 1999.

This is what led to Toys R Us partnering with Amazon to take over their eCommerce sales for 10 years, starting in 2000, which meant Toys R Us completely abandoned the idea of selling goods via their own website.

Amazon ended up violating the terms of the contract by letting other third-party retailers sell toys on the site, and Toys R Us successfully sued Amazon in 2006 and was awarded a sum of $51 million in damages, which was paid in 2009. 

But this wasn’t enough to stop Amazon — drastically reduced prices and perks like free shipping meant that Amazon’s place at the top of the toy sales market was solidified.

Fast Forward to the holiday season of 2017, and companies including Amazon, Walmart, and Target were selling toys at such discounted rates that it spelled the end of Toys R Us as we knew it.

US toy retailer market share over time

Since these companies could make up for selling toys at a loss through their other merchandise, they could list items at prices that Toys R Us couldn’t compete with. Toys R Us stated it was “the perfect storm” and began shutting down operations shortly after.

Billions of Dollars in Debt

As we mentioned earlier, Toys R Us had accumulated around $5 billion in debt by 2017 and had, in fact, already filed for bankruptcy before the “perfect storm” created by competition occurred during the holiday season of 2017.

A big reason behind this debt was that, faced with declining sales and profits, Toys R Us put itself up for sale in 2004, and a leveraged buyout took the company private in 2005.

Investment firms Vornado, KKR, and Bain Capital, bought out the company for $6.6 billion, using billions of dollars of borrowed capital. 

Prior to the buyout, Toys R Us had approximately $1.86 billion in debt. After the buyout, that number shot up to $5 billion (because of the capital borrowed to buy the company).

Toys R Us debt

The addition of more than $3 billion in debt from this leveraged buyout meant the company had very little cash to reinvest into the business.

Customers who continued to shop at Toys R Us stores complained of poor merchandising, lack of employees to help them, and just a general decline in the quality of the shopping experience, so many took their business elsewhere.

The nature of all businesses is that they have to evolve to survive and because of its massive debt, Toys R Us just didn’t have the funding to keep changing and keep up with the modern retail industry.

Declining Toy Sales

A third, less-mentioned reason for Toys R Us shutting down was a general decline in the sales of toys.

Much of children’s entertainment shifted to digital during the first two decades of the 2000s, and there just wasn’t the same demand for physical toys as there had been up to the end of the 90s.

The toy industry was traditionally heavily reliant on holiday season sales for profits, and more and more parents were giving their children video games and other electronics instead of toys at Christmas.

This trend was reflected in the wider toy sales industry, with many independent toy retailers closing during the same era because business just wasn’t profitable anymore.

Did Toys R Us Come Back?

So, now you know what happened to Toys R Us and why the company shut down all its stores by 2021, but it's not all over for the beloved toy store. 

Toys R Us is currently making a comeback with new launches in the US and UK markets, which come after a major restructuring of the company.

After filing for bankruptcy, Toys R Us worked on developing new business models under the name of a new parent company, Tru Kids. 

Tru Kids relaunched the Toys R Us website in 2019 in partnership with major competitor Target as a fulfillment partner. However, the deal fell through, and Tru Kids then partnered with Amazon for fulfillment.

Toys R Us website

Then the COVID-19 pandemic hit in early 2020, causing more financial losses for Toys R Us, and it was announced in March of 2021 that brand management company WHP Global had acquired the brand.

In August 2021, WHP Global announced a brand partnership with Macy’s, which would allow Toys R Us to sell goods via the Macy’s website and through in-store locations at the approximately 400 brick-and-mortar Macy’s stores.

As of August 2022, Toys R Us had opened locations inside different Macy’s in nine states. The company announced it planned to open in every Macy’s by mid-October, right before the popular holiday shopping season.

Additionally, Toys R Us relaunched eCommerce sales in the UK in September 2022 with a new website and a catalog of 14,000+ toys available with next-day delivery.

At the peak of its popularity, Toys R Us had a total of 105 retail stores across the UK, where it first opened up shop in 1985. The company has not announced any plans to reopen brick-and-mortar stores in the UK and appears to be fully focusing on online sales for now.

Frequently Asked Questions

What Does Toys R Us Stand For?

Toys R Us is a phonetic representation of the phrase “toys are us.” It is the trademarked name of an American toy, clothing, and baby product retailer that once operated 739 stores in the US and more than 750 international stores.

Who Were Toys R Us’s Founders?

The first Toys R Us retail store was founded by Charles P. Lazarus in 1957 in Rockville, Maryland. He had previously opened a baby furniture retailer called Children's Bargaintown in 1948 before pivoting to focus exclusively on toys.

What Was the Toys R Us Slogan?

Toys R Us had many advertising and marketing slogans over the years, but its most famous to this day is “I don't want to grow up, I'm a Toys R Us kid,” which comes from the retailer’s jingle dating back to 1982.

When Did Toys R Us Go Out of Business?

Toys R Us filed for bankruptcy in 2017 and closed its last two retail stores in 2021. However, it has since restructured and started opening Toys R Us stores inside Macy’s department stores across the United States.

Why Did Toys R Us Close Down?

Toys R Us closed down because it had billions of dollars in debt and could no longer invest the money required to keep up with competition. This ultimately led to the company filing for bankruptcy and selling or closing its last remaining stores.

Is Toys R Us Fully Gone?

Toys R Us is making a comeback by partnering with Macy’s to sell toys via the retail giant’s website and in its brick-and-mortar stores across the US. The company announced plans to open a store inside every Macy’s location by October 15, 2022.

Who Bought Toys R Us in 2021?

WHP Global acquired a controlling interest in Tru Kids, Toys R Us’s parent company, in 2021 and will be managing the brand going forward. WHP Global is the company responsible for Toys R Us’s comeback and its expansion into Macy’s stores.

Is Toys R Us Coming Back to the UK?

After closing all of its UK stores in 2018, the Toys R Us eCommerce site is now available again in UK markets as of September 2022. There have been no announcements about new brick-and-mortar Toys R Us stores in the UK.

Wrapping Up

For anyone buying toys in the 80s and 90s, Toys R Us was a household name. 

But, like many other retail businesses, Toys R Us dealt with many challenges related to competition and the changing retail landscape, largely due to the advent of online shopping and digital entertainment.

Despite its massive debt, bankruptcy, and the closure or sale of 1500+ worldwide retail stores, Toys R Us is still around.

Those who love the nostalgia of the Toys R Us brand will be happy to know it can now be found inside Macy’s stores throughout the US, as well as online in the US, the UK, and other international markets.

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