A toy store’s untimely demise
The Washington Post
For anyone who grew up in the ’70s or ’80s, Toys R Us was “a magic kingdom,” said Megan McArdle. So it was sad to hear this week that the largest toy retailer in the U.S., “already in bankruptcy,” is headed for liquidation. Retail analysts predict that once the chain’s stores are shuttered, the $20.7 billion U.S. toy market will actually shrink, by roughly 3 percent. But if Toys R Us has such “a meaningful” effect on toy sales, why isn’t it viable? “The answer is a combination of ‘bad planning’ and ‘bad luck.’” When the chain was bought by private equity firms in 2005, much of the $7.5 billion deal was financed by debt; Toys R Us has been saddled with $400 million in interest payments every year since. That debt load, even more than competition from Amazon, sealed the chain’s fate. But “bad management and greedy bankers” aren’t entirely to blame, either. Safeway and Hilton, after all, are still going strong after their leveraged buyouts. If anything, Toys R Us’ timing, three years before the financial crisis, was simply unfortunate. It’s not unlike people who took risks with their home equity in the 2000s. Those who did it in the early part of the decade had little trouble, but those who waited just a few years later met ruin. “We like to tell ourselves morality plays about failure.” But sometimes, success comes down to chance and timing.