Ominous sign for retail
Six months after filing for bankruptcy, Toys R Us announced that it will close all its U.S. stores. Liquidation sales will take place over the next few months, according to the NYTimes.
What went wrong: In explaining the demise of the iconic retail chain, many point to the rise of e-commerce and the general malaise of the retail industry. While this is true, Toys R Us never recovered from the $6.6 billion in debt that Vornado, Bain Capital, and KKR laid on it after a leveraged buyout in 2005.
Hindsight is 20-20: The three firms sank an astonishing $1.3 billion of equity into the takeover. In the words of Jordan Belfort of the Wolf of Wall Street, “I can promise you, even in this market, is that I never ask my clients to judge me on my winners. I ask them to judge me on my losers because I have so few.”
Be Smart: Toys R Us was at the intersection of so many challenging trends and the debt simply caught up with them. Sad story.