Toys R Us is to focus on its smaller, interactive stores and online selling and move away from larger big box stores as it adapts its UK business to reflect changes in consumers’ shopping behaviour.
The toy retailer, a Top100 trader in IRUK Top500 research, says it may close up to 26 large-format stores in the UK as part of a company voluntary arrangement that seeks creditor approval to reposition its store network.
In the meantime, it says customers can continue to shop as usual over the Christmas and New Year period, with store closures likely to come into effect from spring 2018.
“Like many UK retailers in today’s market environment, we need to transform our business so that we have a platform that can better meet customers’ evolving needs," said Steve Knights, managing director of Toys R Us UK. "The decision to propose this CVA was a difficult one, but we determined it is the best path forward to make essential changes to the business.
“Our newer, smaller, more interactive stores are in the right shopping locations and are trading well, while our new website has generated significant growth in online and click-and-collect sales. But the warehouse style stores we opened in the 1980s and 1990s, while successful in the early days, are too big and expensive to run in the current retail environment. The business has been lossmaking in recent years and so we need to take strong and decisive action to accelerate the transformation.”
Today the retailer’s website was running what is billed as its "biggest ever Christmas sale".
The restructuring plan relies on gaining creditor approval over the next 17 days, with a vote scheduled for December 21. It is also likely to mean redundancies among its 3,200 workforce, although the business aims to redeploy staff where possible.
“We recognise this process will affect many of our team members and their families, so we are committed to keeping all of our staff informed throughout this process," said Knights. "Our teams will continue to play a key role in turning our business around.”
Commenting on the news, Fiona Paton, senior retail analyst at Globaldata, said: "As more toy sales move online Toys R Us has struggled, but other toy specialist chains have managed to steal market share, with The Entertainer and Smyths Toys both rolling out stores and delivering growth.
"Additionally, the market has remained steady in toys & games growing 16.8% over the last five years, meaning Toys R Us’ position is not one of external market conditions but rather its own strategy. The retailer now has to make crucial and expensive investments in adding ‘retail theatre’ to its stores and giving consumers new reasons to visit if it is to continue operating in the UK."
She added: "If Toys R Us is to survive, its focus must be on creating an exciting instore experience to bring it in line with competitors on the high street."
Alvarez & Marsal is restructuring advisor for Toys R Us, while Kirkland & Ellis is principal legal counsel.
In total, Toys R Us UK has 105 stores, and has been selling online via toysrus.co.uk since 1996. Its parent company Toys R Us Inc has nearly 65,000 employees worldwide and sells in more than 810 international stores in 38 markets.