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This Christmas (2013) could be make or break for TRU

wrangler6915wrangler6915 USA - Lincoln NEMember Posts: 496
edited January 2014 in Buying & Selling Topics
Intersting article providing a summary of TRU from a financial perspective:

http://qz.com/148668/this-christmas-could-be-make-or-break-for-toys-r-us/#!

Comments

  • klatu003klatu003 Hobbiton, Shire, Middle EarthMember Posts: 717
    "LBO" The financial equivalent of "smash and grab." I'm glad that Lego is privately held and I hope that continues.
  • doriansdaddoriansdad CTCMember Posts: 1,337
    No suprises here. Bain's business model is to buy companies, swap equity for debt, raid retirement funds, and then let the company go bankrupt. TRU has $4 billion in debt due 2018. I am sure Bain will do its best to limp along as long as folks are willing to lend but I do not expect TRU to be around much longer. Good riddance and hopefully Amazon will be able to sell technic after these jokers are gone.
    Si_UKNZ
  • ObserverObserver Member Posts: 60
    That's too bad.
  • madforLEGOmadforLEGO Chicagoland USMember Posts: 9,179
    It is really a shame what TRU has become. I will always have fond memories of looking at their row of LEGO and also Hotwheels and matchbox cars and what not.. I miss the old TRU where the stores were all roughly set up the same way and it did not look like someone with ADHD designed the place. And those good old item tag sheets where you would take those up to the little front room after the cashier to get your item delivered to you.. ohh the memories.
    Just a shame that they have been run so piss poor over the last decade
    VaderXy2joshkorTheBrickLaddbluemodern
  • mrseatlemrseatle Member Posts: 410
    The only thing that can help my local TRU is moving to a better neighborhood. Used to be a posh shopping destination, now looks like the slums in Mexico city. Unfortunately I think Bain owns the Staples next door, the whole block maybe...
  • DougoutDougout Member Posts: 888
    This is so sad. Oh well though, as it turns out maybe Romney wasn't a good choice for running the country after all.
    legomasonllanowarsoldierbluemodern
  • VaderXVaderX Member Posts: 220
    Greedy business model fails? Hmmm I feel really bad ;)

    You reap what you sow?
  • LegoFanTexasLegoFanTexas TexasMember Posts: 8,409
    VaderX said:

    Greedy business model fails? Hmmm I feel really bad ;)

    You need to read up more on how LBO works... :)

    Their business model works very well, it does not require that TRU survives for the investors to get rich.
  • LegoFanTexasLegoFanTexas TexasMember Posts: 8,409
    klatu003 said:

    "LBO" The financial equivalent of "smash and grab." I'm glad that Lego is privately held and I hope that continues.

    Yep, I posted about this almost a year ago here on the forums, after taking a look at the balance sheet, I predicted that TRU wouldn't last 5 years.

    The debt due in 2018 is going to kill them, and it might do it in 2017 depending on how cashflow goes and if the bond markets will keep lending to TRU or not.

    TRU has a huge brand name, it is really the only toy store left, but it runs the risk of simply not being needed anymore. Without all that debt, it might do ok, but it would have to execute perfectly to survive. Billions and billions of dollars of debt have been loaded onto the company, and it frankly doesn't make that much to start with.
  • piratemania7piratemania7 New EnglandMember Posts: 2,019
    Finally! Listen, I am as empathetic as the next person. I want jobs, business, growth, exceleration, all of the above! However, I think it has ALWAYS been preposterous that two things occur at TRU:

    1. Prices are always overinflated, why? Because of many reasons but one glaring is that they have more locations that TLG and because all other toy stores have been run into the ground, so they can arbitrarily raise prices on something that retails for a completely other price!

    2. And this is somewhat related to number 1, they release sets way in advance of other retailers, INCLUDING TLG. How is a little Danish company going to really put the muscle on a big bad American company? Especially when its such a huge funnel for their product?

    At any rate, changes need to be made and perhaps its better this way. I think there certainly needs to be a chain toy store retailer out there to keep the online markets and walmart and target in check, but maybe it will help in the long run for more actual TLG stores to open, thats a good end goal for me.
  • iancam33iancam33 Member Posts: 407
    All in all it comes down to the fact that brick and mortar stores are going the way of the dinosaur. There is too much overhead to compete with the likes of online retailers and other stores that offer a wider range of products. The only real brick and mortar places that will survive are those that offer actual service such as repairs/maintenance along with a product. Think of all the retailers who in the last 15-20 years that have gone out of business. You could name dozens of them (Caldor, clover, bradlees, KB toys, kiddy city, etc). In time we are going to end up with less than a handful of places to buy products from. I wouldn't be surprised if in time amazon buys retailers such as target or even Walmart to increase their share on the market.
    chromedigi
  • klatu003klatu003 Hobbiton, Shire, Middle EarthMember Posts: 717
    A nice little example of what has been happening in the last thirty years. Defined benefit pensions are such a waste of good capital.
  • dragonhawkdragonhawk USMember Posts: 633

    Intersting article providing a summary of TRU from a financial perspective:

    http://qz.com/148668/this-christmas-could-be-make-or-break-for-toys-r-us/#!

    This explained (partially) the extraordinary pre-BF deals they have been having in the recent weeks
  • wrangler6915wrangler6915 USA - Lincoln NEMember Posts: 496
    ^DB plans are much better protected now than they were in the 80's. Note that Plan assets belong to the beneficiaries, not the company, and as such generally are not able to be touched by anyone else or subject to bankruptcy proceedings. However, if a Plan is fully funded, and excess capital is being held in reserve, then that may be fair game. But, it's a rarity to see a Plan nowadays that is 100% funded, so this incentive is generally not viable. Takeover strategies are now driven more by the potential for leverage (i.e. put up 10%, borrow 90%) and the tax treatment of the carry interest (ordinary income v. long-term capital gains).
  • LegoFanTexasLegoFanTexas TexasMember Posts: 8,409

    This explained (partially) the extraordinary pre-BF deals they have been having in the recent weeks

    That... And sales in general this are down. I had a nice burst over the past 10 days, but it has already slowed down. I'm on track to do about 20% less this month than I did the same month last year.

    And that is with a larger inventory.

    Prices are down, sales are down, just a rough year. Doesn't help that there are 6 fewer selling days between turkey day and Christmas Day. So everyone is trying to get stock moved now, which is holding down prices. If you're a mid sized seller with thousands of sets in stock, you don't want thousands of sets left in stock after the holidays.
  • VenunderVenunder Nottingham, UK.Member Posts: 2,435
    It would be a shame for TRU to fail. However it does look to be in a very bad financial situation.
    Although a competitive pricing policy to match the sales of companies like Tesco, Asda (Walmart uk) and John Lewis might help them to recover.
    Really they have 3-4 years to get their act together.

    If TRU does go into liquidation I would not be surprised for Smyths toys or a company like Toymaster to buy some of the UK stores.
  • piratemania7piratemania7 New EnglandMember Posts: 2,019
    There really is nothing else I can think of off the top my head that here in the States could assist if TRU began to liquidate. I think they would sell off bits and pieces to other retailers such as walmart, target and smaller retail stores and perhaps just have really large going out of business sales? Now that would surely help them with some cash flow.
  • Wil348Wil348 Member Posts: 240
    edited November 2013
    To be honest, I don't need TRU anymore. I have [email protected] Amazon and LEGO stores for LEGO, and Amazon for video games. If they shut down, it really wouldn't bother me. I just hope the staff can find new jobs.

    Their markups are just plain ridiculous, exceeding the RRP very often,
  • tamamahmtamamahm Member Posts: 1,927
    I generally do not shop Toys-R-Us, but they do add a bit of competition to the market. (Yes, I know their prices are generally jacked up, but think Bricktober last year, and Walmart's response!)

    I also think they occasionally have items that I can't find at other B&M sores. As it is if my kids look at Target or Walmart, they see the exact same items. Toys-R-Us is one of the only places near me that has any playmobil to really 'look' at, and I have gotten a few good deals on playmobil over the years. Local toy shops were basically decimated during the recession, so places that had playmobil or nice collections of Schleich are gone. Target used to have a great alternative toy aisle, but they have back away from that.


    While Toys-R-Us does have mark-ups, a savvy shopper can get around those.
  • murphquakemurphquake Member Posts: 651
    @tamamahm is totally right.. I got 30186 & 70707 today for 18.95 out the door at TRU... only prob is I forgot I had a $10 off $100 coupon on me and my friend was buying 90 bucks of baby stuff, we could have put our stuff together and kept that money... Oh TRU has coupons for a Free Frosty Cone at Wendy's with any purchase, we each got one and since Wendy's was our dinner plans we had a nice little bonus to the trip (and proved we went in the right order to the right places)
  • YellowcastleYellowcastle Member Posts: 4,401
    Do we know yet how TRU did this past Christmas?

    I've been stupidly ratholing TRU gift cards (birthdays, Christmas, etc) for years and am now quickly trying to use them up on LEGO exclusives. I've been looking closely for the past several weeks and finally found Town Hall back in stock 2 days ago. It was my third choice after Orthanc and Haunted House, but HH disappeared a few weeks ago and then they inexplicably recently bumped Orthanc to $250.

    I also grabbed Colby Town, Wizard Batle and some Hobbit pollies but still have around $75 left. Seeing as how Arkham just showed up again, albeit at a premium, I'm still holding out hope for HH. Otherwise, it looks like I'm going to have to settle on Ewoks, Cinema Palace or Parisian Restaurant (which is already on FAO.com).

    Ever since Sharper Image went belly up, I've made it a point that my family use up any/all gift cards immediately, including restaurant giftcards, for fear of their potential bankruptcy. Despite our continued direction, we still end up getting gift cards for TRU, Fuddruckers, UNOs, etc. ;o)
  • YellowcastleYellowcastle Member Posts: 4,401
    Per WSJ:

    Jan. 9, 2014 4:08 p.m. ET

    Toys "R" Us Inc. said same-store sales in the U.S. increased slightly during the final weeks of 2013, though the toy retailer reported some weakness in Europe and other foreign markets.

    Overall, for the five-week period ended Jan. 4, the retailer said U.S. same-store sales increased 1.8%, bolstered by growing demand for learning and seasonal products. Internationally, same-store sales slid 1.1%, as rising demand in Australia, China and southeast Asia was offset by softness in Japan, Europe and Canada.

    The mixed results from the retailer, which operates its namesake and Babies "R" Us stores, comes as the company has struggled to battle such online rivals as Amazon.com Inc. AMZN -0.62% and other big-box retailers for a slice of consumer spending.

    For the first three quarters of the fiscal year, Toys "R" Us has reported wider losses, stung by weakness in net sales and weaker gross margins.

    A number of major retailers indicated they would heavily discount in the latest holiday season in a bid to capture market share. Toy "R" Us on Thursday didn't disclose any metrics beyond same-store sales.

    Toys "R" Us was purchased in 2005 by Vornado Realty Trust and private-equity firms Bain Capital and Kohlberg Kravis Roberts & Co. for $6.6 billion. The retailer dropped plans for an initial public offering early in 2013, amid declining sales and heightened competition.
  • XefanXefan Member Posts: 1,149
    Sounds like they're just in zombie mode, waiting to finally die. Nothing to save them, but no crushing blow to finally finish them off either. Still a game of wait and see I guess. I wouldn't be surprised if they shut down or scale back European operations though if they did so badly here and perhaps just retreat back to the US and try and improve things there perhaps.
  • legomattlegomatt Member Posts: 2,541
    edited January 2014
    I hope it doesn't suddenly collapse for the sake of the families dependent on those thousands of jobs. As badly as it appears to be ran, it's a large employer - the billionaire owners will never lose a penny that's for sure.
    BrickarmorSirKevbags
  • jediami65jediami65 United StatesMember Posts: 474
    legomatt said:

    I hope it doesn't suddenly collapse for the sake of the families dependent on those thousands of jobs. As badly as it appears to be ran, it's a large employer - the billionaire owners will never lose a penny that's for sure.

    You are on the mark legomatt, it will affect a lot of employees and their families, never those that did not have foresight and initially thought about how much more money they could make taking it public when they made the purchase and through their own design have put the company in its current bad state.
  • CCCCCC UKMember Posts: 17,204
    Many of the staff probably know of the problems. The brighter ones will hopefully be looking for new work while they are still employed.
  • mrseatlemrseatle Member Posts: 410
    If TRU went under, the only large toy shopping choices left around here would be Wal-Mart or Target. Ugh... Wal-Mart always has at least a half hour wait to check out. And Target never price matches their own website for me.

    I'm sure the internet side of TRU can help sustain them. And maybe they'll still go public... Also I doubt the employees will suffer much since most are seasonal or minimum wage job.

    Plus people are always making babies and that goes on all year round. So the Babies R us side can keep them afloat during the non-holiday seasons.

    TXLegoguy
  • wagnerml2wagnerml2 Belleville, IllinoisMember Posts: 1,376
    Ownership needs to make a investment beyond their initial buy-in. The TRU stores are generally old and run down, the image is terrible. Mine is not that clean or organized. Merchandise sits around FOREVER a gets stale (see he 2012 SW advent calendars at mine still for $29.99). Employees, generally, are a bit undisciplined and untrained. Their customer service is inconsistent and their website and online ordering is a mess. This doesn't even begin to discuss mark-up issues. These are all areas that ownership needs to address. I question whether they care based on their efforts to date.
    margotTXLegoguylegomatt
  • doriansdaddoriansdad CTCMember Posts: 1,337
    edited January 2014
    The new owners did not acquire the company to turn around the business and make a profit. They acquired it to syphon off the equity in the company and retirement funds and replace it with debt. I don't think I will miss them too much once drones start airdropping my merchandise from Amazon. Pretty soon I won't have any reason to leave my house. Good times :)
    Yellowcastle
  • wagnerml2wagnerml2 Belleville, IllinoisMember Posts: 1,376
    @Doriansdad - I have not looked at the financials, but you have to siphon quite a bit to overcome a $6.6 Billion acquisition price. Even if a lot of the acquisition price was credit driven. Post GM, the rules about what you can do with retirement funds has changed.
  • LegoFanTexasLegoFanTexas TexasMember Posts: 8,409
    They have already done it for the most part... TRU was bought in 2005, so it predates the 2008 financial downturn, no one was paying any attention back then, they could do what they wanted.

    I looked at the TRU balance sheet awhile back, it is ugly, over $4 billion in debt if I remember. I believe the new owners have already cashed out and don't care what happens at this point.
    TXLegoguy
  • ninjagolightlyninjagolightly Member Posts: 140
    I must live in the only part of the country where TRU is franchised or something... all my local stores are recently-remodeled, well-organized, well-run and staffed with people who are friendly. Still the same ripoff pricing of course, but the selection is unmatched for brick and mortar. I have no idea how these stores are doing financially, although the LEGO rep for my local stores told me that one of them is among the highest volume LEGO retailers in the entire country.
  • LegoFanTexasLegoFanTexas TexasMember Posts: 8,409
    ^ Moving lots of product doesn't a profit make, sad to say...

    There is a saying in business... revenue is vanity, profit is sanity...

    Amazon did more than $60 billion in revenue last year, but how much profit was made? Who cares how impressive you look, if you're but an empty shell?

    This is why Walmart is such an impressive business. Huge volume of product moved, year after year of billions of dollars of profits. The margins aren't great, but at their size and scale, they don't have to be.
    TXLegoguy
  • wagnerml2wagnerml2 Belleville, IllinoisMember Posts: 1,376
    My brother-in-law works for Nielsen (Sp?). Previously, he was an account rep for Energizer battery. His account was Wal-Mart. It is interesting how they operate. They like to require a packaging or quantity that a manufacturer does not offer to other retailers. Walmart used to be the only place you could get a 48 count AA battery package of energizer batteries. If energizer wanted to be In Walmarts, they had to offer something along these lines.

    He told me a story about how Vlasic Pickles decided that they needed to be in Walmart and Sams. Vlasic offered Walmart a 1 gallon pickle jar that they didn't offer to anyone else. They agreed to sell the jars to Walmart/Sams at a loss, but they felt that the presence in the stores was important and the brand needed the attention. They figured that they could absorb the loss and make it up with higher margin/smaller quantity jars being offered through other retailers.

    Problem was that once someone bought a 1 gallon jug of pickles, it took them out of the pickle-buying market for a much larger period of time. Vlasic's historic sales projections were inapplicable because people were not buying with the same frequency. It almost sank them.

    I say this only to illustrate that WalMart is in a unique position to dictate to suppliers, rather than vice versa. This , along with other factors, allows them to sustain their model over an extended period of time
    TXLegoguyYellowcastle
  • LegoFanTexasLegoFanTexas TexasMember Posts: 8,409
    ^ The Walmart/Vlasic pickle story is well known:

    http://www.fastcompany.com/47593/wal-mart-you-dont-know

    I've posted about it before. Walmart is well known for telling suppliers what they'll sell and at what price, take it or leave it.

    Walmart is known for being very fair and paying their bills promptly, but they are ruthless in a way that perhaps no one else in retail can afford to be.
    TXLegoguyDanGP
  • legoprodslegoprods SpainMember Posts: 434
    Similar to this one was the one with the High quality lawn mower making company.
  • LegoFanTexasLegoFanTexas TexasMember Posts: 8,409
    ^ Yep, Walmart has enough going on that it could be a complete course in business school all by itself.

    Walmart imports about 10% of everything China sends to the US, Walmart is about 3% of the whole US economy, and it is so far ahead of everyone else in retail, that it really rests in a category all its own.

    For 2012, Walmart did $468 Billion in sales. Target is often quoted as the closest competition. For 2012, Target did $72 Billion in sales, which is about 15% of what Walmart did.

    In fact, looking at general retailers, to equal Walmart in total sales, you have to include the following:

    The Home Depot - $75B
    Target - $72B
    Amazon - $61B
    Walgreen - $67B
    CVS - $64B
    Sears - $36B
    Macy's - $27B
    JC Penny - $13B
    Toys R Us- $16B
    Office Depot - $10B
    Kohl's - $19B
    Family Dollar Stores - $9B

    There are of course others you could include, and places like The Home Depot do a ton of sales to contractors that Walmart isn't competing with, and places like Macy's may really not belong on the list.

    But the total is really massive when you look at it this way.
  • gmpirategmpirate Member Posts: 1,654
    wagnerml2 said:

    My brother-in-law works for Nielsen (Sp?). Previously, he was an account rep for Energizer battery. His account was Wal-Mart. It is interesting how they operate. They like to require a packaging or quantity that a manufacturer does not offer to other retailers.

    Walmart is not the only company that does this. Costco is another example. Sometimes the products are virtually the same but given different product numbers. Even if the item is not unique, it does make it more difficult to compare pricing.

    Anytime any supplier gets dependent upon a retailer they are open to the same terms. Happens all the time in most industries. Walmart is the biggest, is most often vilified and so thus gets the most press for it.
  • mrseatlemrseatle Member Posts: 410
    That brings up another factor in favor of TRU; their own high margin brands...
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