Amazon Has Considered Buying Some Toys ‘R’ Us Stores
bloomberg.com
bloomberg.com
I personally believe Toys R Us just missed an opportunity to run a proper business. They have a ton of retail space, but every time I've been there, it's run like Walmart. Shit everywhere, no one to help you find anything, etc...
There's nothing suburban parents like me want more than an indoor play space for my kid (for extremely hot or cold days). If they properly utilized their store and made it more like a play space, I would bring my kid there every weekend.
Right now I am paying money to go to those "kids museum". Why didn't Toys R Us think to capitalize on that market?
Also, if they had people to playfully demo the toys to my kid, I am pretty sure we would buy way more toys instead of just leaving frustrated because we can't find what we wanted.
It would fit right in with Amazons style of business then.
The whole point he was making is, once amazon existed, they failed to compete with it. You're a physical store, you have the possibility to interact with people, offer them things they can't have over the internet, use it. If you don't, you're wasting a lot of money on prime rent.
Buy company. Take out massive debts on company's books. Withdraw hundreds of millions in "fees". Let company collapse. Rinse, repeat.
Bankruptcy in general is shady though and no matter what, when it happens, somebody is getting screwed out of a lot of money... usually the debtors.
Keep in mind, Toys R Us had some 20% of the online toy market. And without the debt hanging around their neck, they'd actually have funds to invest in competing.
They make the company pay them dividends while saddling the company with their debt.
"The debtors however get screwed even further... most if not all of them get absolutely nothing."
And yet, they keep lending to these vultures. I have no sympathy.
Yes that is true. Is the sum of dividends over X years >= the amount of equity wiped out in a Chapter 7 liquidation? Impossible to say... the company is private.
> They make
They didn't make them do anything. They bought the company... they can do what they want as owners. That's just how this game works.
Man I wish I knew the fine details of the books of a multi-billion dollar private equity firm like you do.
Toys R Us made a 10 year deal with Amazon to be the exclusuve toy seller in 1999, that had already fallen apart by 2005. Amazon was already the top online toy reteller by then. As far as debtors being "screwed", hopefully they are both diversified enough and demanded enough of a risk premium for them to at least break even on their entire portfolio of loans.
https://qz.com/1080389/a-dot-com-era-deal-with-amazon-marked...
Apple learned that lesson a decade ago. If you look at the post Steve Jobs Apple, they brought more in house - retail, chip design, software, and rumors are they are trying to bring screen design more in house. Anything else, they try desperately not to depend on one supplier - commoditizing their compliments. (https://www.joelonsoftware.com/2002/06/12/strategy-letter-v/)
If the money is coming from investors that are getting bad advice, that's a problem. If Warren Buffett wants to risk $4 billion on some Bain scheme, meh.
Manchester United in the UK were bought and loaded up with debt. They are ok now as the team is doing well, but if they stumble there is a colossal mountain of debt that still needs servicing regardless.
The whole concept of being allowed to financialize delicate businesses needs more regulation IMO
A bust-out scheme is the least of their failings.
Was the debt intended to help them grow?
I have family members who run a small retail store with excellent inventory and service, and they barely scrape by due to people show rooming. They are not in toys, but they simply cannot compete on price, as Amazon, etc sells it cheaper than they can buy from the suppliers.
Perhaps they miswrote, but the comment says that Amazon is cheaper than the supplier.
It's somewhat common for a large manufacturer to accidentally undercut themselves. For example, one branch selling to Walmart and another selling direct to restaurants. Sometimes the price at Walmart, even after Walmart's margin, is cheaper than the direct price. The restaurant-sales group is horrified as they lose customers to Walmart and goes running down the hall to tell the bigbox-sales group to raise prices.
On various 'crapware' (cables etc), eBay is cheaper (especially if it is an 'addon' item and you have to pay for shipping).
For larger purchases I've done usually a different online store has similar prices, but a free extended warranty/accessory.
I think that the idea of a "destination store" has been dying a slow death, and making them a lot more unattractive is accelerating this.
as for toys, I found myself paying a little over MSRP (not 20%) at my local walking-distance boutique store, but mostly because it was in my neighborhood.
Wow.
I was definitely impressed. For a chain that used to be "the other Walmart", the design and general feel of the store was miles different today.
So hats off to Mr. Johnson, and Target for hiring him.
Side note: Having a Starbucks in-store at Targets is brilliant. I imagine the deal works out financially for both parties, and Target gets to affluence-signal "we're the type of store that Starbucks people shop at."
The ones that haven't gone through the transition yet still do have that 90s warehouse feel of a more expensive Wal-Mart.
When our daughter was born we price compared them for a lot of big ticket items, but ultimately just bought online or at Target / Walmart.
A few times a year they have a good deal on something (again with coupons) so we purchase, but walking into the store blind shopping is basically just paying a 15% corporate convenience fee.
If they were price competitive with others, I would have stopped in there a lot more, but oh well.
Toys R Us has been struggling to pay off $6 billion in debt from the Bain Capital takeover in 2005. They didn't have the capital or the margins to invest in maintaining their stores, let alone competing with Amazon.
Buying a company with debt and then forcing that company to pay off that debt is fairly common, but for some reason it surprises me that it's actually legal. Why isn't Bain forced to pay off the debts when the company goes under?
https://www.forbes.com/sites/walterloeb/2018/03/19/bain-capi...
https://www.rollingstone.com/politics/news/greed-and-debt-th...
My guess is that they come out ahead even after the bankruptcy. They would have put some of their own money in to purchase equity but my guess is, not more than fees would amount to after a decade.
They were tweaked to work on a different time scale.
The idea they can get some distance to avoid scrutiny.
In a lot of cases, the debtors are also the owners of the firm that initiated the leveraged buyout. They load the target up with debt, can't make the payments, and then they collect as debtors.
See Sears and their current CEO for exactly that model. It's been going on in retail for years. They're all getting boned hard though thanks to Amazon gutting brick-n-mortar retail. OOPS.
Of course the real people being screwed are the folks on main street.
Face it, the only reason they were in trouble, and the only reason this bankruptcy is happening, is because of the parasitic capital firms involved.
Toys r US's numbers were significantly below where they'd need to be at to survive. It's unclear why you think we should infringe on banks ability to decide who to lend money to and what collateral to require.
If Amazon ran the store, they could just buy it right there @ Amazon prices, and within the Amazon ecosystem That would kill the other stores.
The private equity practice of saddling the company you're buying with the debt you used to buy it should be banned. There is absolutely nothing worthwhile that comes from it.
Funny enough, a new cafe opened up a few blocks from where I live with this in mind. About half of the customer space is a play area for smallish children, and the other half is "normal" with tables and chairs... My point being that it doesn't need to be limited to toy stores or kiddie museums, even if this particular cafe boards up shop.
"The concept for Disneyland began when Walt Disney was visiting Griffith Park in Los Angeles with his daughters Diane and Sharon. While watching them ride the merry-go-round, he came up with the idea of a place where adults and their children could go and have fun together, though his dream lay dormant for many years"
It seems like in this experience economy when we all have enough basic material goods, there should be a market for something like what your describing.
"The online giant isn’t interested in maintaining the Toys “R” Us brand, but has considered using the soon-to-be-vacant spaces for its own purposes, said the people, who asked not to be identified because the talks are private."
Toys R Us was profitable. Period.
They were acquired by predatory capital companies (Bain Capital) via a leveraged buyout which loaded them down with huge debt repayments. The new owners extracted massive amounts of money from Toys R Us and then let them die as they were crushed under their debt burden.
This is not a story of a company that failed to keep up with modern times, Toys R Us had a long profitable life ahead of it. This is a story of corporate predation, one company killing another in order to feast on the carcass. Bain Capital basically pocketed hundreds of millions of dollars while leaving Toys R Us customers and employees as well as private banks holding the bag.
Obviously, not every single storefront needs to be that (grocery stores come to mind) ... but for the average mall, no one wants to actually go there and walk around any more. The mall needs to be a place that entices people to go there and simply exist ... do stuff, hang out with people, even if they spend no money at all.
Arduino and Rapsberry Pi should have been their saving grace. Not cheap RC cars.
https://www.marketwatch.com/story/mattel-shares-plunge-as-no...
If they are going to get into the business ( acquiring retail space) it will be one that fits into their equation for their last mile problem and be at fire sale prices.
If they choose to purchase retail real estate, it will most likely be a combination of retail/grocery/banking all in one, sort of like a Walmart, but way better experience.
This most likely will be their approach to get baby boomers to shop and to learn how to shop online.
As everyone knows, Amazon loves getting things cheaply and will do so if they can.
> Webvan was an online grocery business that went bankrupt in 2001 after 3 years of operation and was later folded into Amazon.com.
> CNET named Webvan one of the largest dot-com flops in history
> Webvan placed a $1 billion order with engineering company Bechtel Corporation to build its warehouses, and bought a fleet of delivery trucks.
> In 2000, Webvan bought HomeGrocer, a competitor that was also losing money, for $1.2 billion in stock.[11][12] At its peak in 2000, Webvan had $178.5 million in sales but it also had $525.4 million in expenses.
As a parent, put a craft beer/craft coffee in my hand (mark that up too, I'll pay) and give my kids and myself an experience, more than just a static display.
Blicks, a store for art supplies has done this with wine nights, painting lessons (with wine), etc.
Ignoring all the damn alcohol, it's brands that will compete by creating an experience that may stand a chance (IMO)
The same thing just happened to Clear Channel. The bankruptcies aren't likely to kill off the business, but hand ownership over to the debt holders.
I'm pretty sure they're not going to buy a big box retailer to jam a bunch of echos into it.
Now why an ecommerce giant is retrogressing to brick and mortar I can't imagine.
Additionally, it can help to simplify logistics ... if there are more locations where they person can go pick up their package rather than having to deliver it, surely that can be a boon to their operations.
But the Echos would likely be front and center. The toys for enriching young children would be replaced by toys for enriching young AI. It's like a private hell designed specifically for a toy store.
It would be beneficial for Amazon in the long run (making people more at ease with voice assistants), but I doubt that this would be the reason for Amazon to buy ToysRUs