According to several media sources, Toys”R”Us has cut as much as 15% of its headquarter staff, which equates to roughly 250 people. It joins many large retailers that have been the victims of slow holiday sales and losses of business to e-commerce.
Toys”R”Us has 880 stores under its flagship and Babies”R”Us brands. The company claims 780 stores overseas. In addition, it has licensed locations that bring the worldwide total to 1,871. Like most retailers, Toys”R”Us has pushed initiatives to move more sales online.
Toys”R”Us had weak holiday sales. Last month its announced same-store sales in the United States had dropped 2.5% for the final nine months of the year, compared to the same period in 2015. International sales fell 4.9%. At the time the numbers were released, Dave Brandon, chairman and chief executive officer of Toys”R”Us, commented:
The 2016 holiday season proved to be an unusual and challenging one for most retailers. Despite a promising start over the Thanksgiving and Black Friday weekend, we experienced lower than expected sales in the toy category overall and continued softness in our baby business. The loss of momentum in the toy category triggered intense promotional activity from our competitors, creating a significant competitive challenge.
It was not the only brick-and-mortar retailer that faced similar problems. And to make matters more of a challenge, Amazon.com Inc. (NASDAQ: AMZN) has a large toy business online.
Toys”R”Us has had other recent problems. Last year, it sold its famous FAO Schwarz location in Manhattan to raise money. It also restructured debt, which allowed it to move the dates its $850 million loans matured from 2017 and 2018 to 2021. Some of the debt carried interest rates above 10%.
The restructuring and layoffs will by no means guarantee Toys”R”Us a bright future. There is no reason to believe that it can avoid the secular decline within the traditional retail industry. This decline already has taken a terrible toll on retailers such as Sears Holdings Corp. (NASDAQ: SHLD) and Macy’s Inc. (NYSE: M). The road ahead is littered with challenges that almost certainly will not change.