Toys ‘R’ Us files for bankruptcy amid struggle to pay down billions in debt

Iconic toy store chain Toys "R" Us filed for bankruptcy Monday night after struggling for years to pay down billions of dollars in debt and remain relevant in an era of online shopping.

The company said its 1,600 Toys "R" Us and Babies "R" Us locations would operate "as usual," and that it would work with its investors to address roughly $5 billion in debt.

"Today marks the dawn of a new era at Toys 'R' Us where we expect that the financial constraints that have held us back will be addressed in a lasting and effective way," Dave Brandon, chairman and chief executive of Toys "R" Us, said in a statement. "We are confident these are the right steps to ensure that the iconic Toys 'R' Us and Babies 'R' Us brands live on for many generations."

The 60-year-old company was for decades the country's preeminent toy retailer, with a towering flagship in New York's Times Square and a ubiquitous icon, Geoffrey the Giraffe. In 2006, it purchased competitor FAO Schwarz, but eventually closed its iconic New York store on Fifth Avenue, citing high costs.

The filing – just the latest in a string of high-profile bankruptcies this year – comes on the heels of the all-important holiday shopping season, which can account for half of retailers' annual sales. So far this year, more than 300 retailers have filed for bankruptcy, including RadioShack, Gymboree and the Limited. Others, including Macy's, Sears and Bebe have closed hundreds of stores.

The Toys "R" Us bankruptcy "brings to a close a turbulent chapter in the iconic company's history," Neil Saunders,managing director of GlobalData Retail, said in an email. "Even if the debt issues are solved, Toys 'R' Us still faces massive structural challenges against which it must battle. The jury is out as to whether it can adapt enough to survive."

Toys "R" Us is currently owned by three companies – private equity firms Kohlberg Kravis Roberts and Bain Capital, and real estate firm Vornado Realty Trust – that purchased it for about $6 billion in 2005.

The Wayne, New Jersey-based retailer, once the first stop for holidays and birthdays, has in recent years faced mounting competition from online retailers and big-box chains like Walmart and Target, which often offer the same toys for less money and more convenience.

At the same time, toys have become less of a priority for many children and teenagers, who would rather buy smartphones and tablets – or apps and games for those devices – than traditional playthings. Two in three young teenagers now have their own tablet or smartphone, and the majority of them said spending on those devices has become an important consideration, according to GlobalData Retail.

"For many children, electronics have become a replacement or a substitute for traditional toys," Saunders said. "With even the most basic of products having a high price tag, there is often little left over – either from the child's budget or the gifting budget of parents and family – to spend on other toys."