Not just Amazon: debt runaway and mismanagement, keys to Toys 'R' Us and Imaginarium problems

The venture capital funds that bought the US chain twelve years ago borrowed it with 5,000 million that it can not now pay

The boss of the toy industry highlights the good moment of the sector and says that the multinational has moved them that the Christmas campaign "will develop normally"

Toys 'R' Us toy chain has declared bankruptcy.

The  suspension of payments of Toys 'R' Us , the biggest distributor of toys in the world, is the last and most outspoken exponent of the difficulties that some traditional operators of this sector traverse. 

A road that, on a much more modest scale, has already passed in Spain the Poly chain (which was in competition with creditors in 2012 and in 2014  ended up in the hands of the French company Ludendo ). 

A path, also, with the time flirting with Imaginarium, which in July announced an  agreement in extremis with its creditors  to refinance more than 30 million euros of debt, parallel to the entry of several international investors.

The Toys 'R' Us story has certain parallels with that of the Zaragoza chain, saving the enormous distances between them. 

Because the big problem of the two is the debt, derived, in the case of Imaginarium, from uncontrolled growth in the midst of a crisis that has paid off with millionaire losses since 2012. 

In the case of Toys 'R' Us, with more than 1,600 stores worldwide, 64,000 employees and global sales of around 9,600 million euros , the US giant has announced that it will accept the bankruptcy law of that country to refinance a debt of $ 5 billion.400 million will expire in 2018.

The chain, which has assured that at the moment will not close stores and will continue operations as normal, has decided to avail itself of the suspension of payments to two months of the Christmas campaign, which concentrates 25% of its sales, and has before it the challenge to ensure that insurers continue to cover the risk of their merchandise. 

In Spain, with annual sales of 226 million, more than 50 stores and 1,600 employees, the share of Toys 'R' Us round 22% of the market .As La Información points out , its turnover has plunged more than28% since 2007, the year before the crisis. 

Amazon e-commerce giant has been singled out as largely responsible for the bankruptcy of the American chain ,    victim of the new generation ofmillennial- era parents  . 

Especially in its country of origin, after, according to according to consultancy Kloster Tradingquoted by the agency Reuters, the company Jeff Bezos has taken from Toys 'R' Us sales leadership in the toy sector in the US.

However, as the Financial Timespointed out Tuesday  , Toys' R 'Us' bankruptcy is also largely the responsibility of its owners:  

the venture capital funds KKR and Bain Capital bought it twelve years ago together with real estate investment company Bornado for $ 6.6 billion and indebted the toy company with $ 5 billion to finance the operation, a slab that has translated into an annual cost of about 250 million per year to finance the service of that debt. 

The British newspaper, citing data compiled by the US securities regulator , adds that in these years the three firms "have paid themselves more than $ 200 million in fees and fees for advice and management."

"Death announced"

An ex-director of the toy industry, who asks for anonymity, points as an explanation of the fall of the American giant, in addition to that leverage, a problem of business model, based on the opening of large stores on the outskirts of cities (compared to recent tendency of some operators to return to the urban center), poor online experience and at least erratic management. 

"It is the chronicle of a death announced," he summarizes.

Some analysts believe that theToys 'R' Us bankruptcy can "amplify" the challenges faced by some major manufacturers in the sector, such as Lego , which announced two weeks ago the largest workforce cut in its history (1,400 employees, 8% total) after registering in the first half of the year its first sales drop in a decade. 

However, it should be remembered that the Danish company has been accustomed to increasing its turnover at double digit rates for a decade and in this period its workforce had tripled.

Quiet Manufacturers

Jose Antonio Pastor, president of the Spanish Association of Toy Manufacturers (AEFJ), points out that the problems of Toys 'R' Us are in the US and Canada " and that the message that has moved the chain is that the Christmas campaign, which in Spainconcentrates 60% of total sales , "is going to develop normally, or that assure us."

The AEFJ brings together some 200 manufacturers with an annual turnover of around 1.5 billion annually (40% is destined for export), 4,500 direct jobs and more than 20,000 indirect ones. 

The sector, says its president, is experiencing a "very good" moment and is about to chain three positive exercises, with a growth that in August was 7% and an increase in exports of 22% in July.

"Another thing is the business models of each one and how you execute the strategy", says Pastor,who remembers that this is a very seasonal market in which things happen very fast, everything is lived with much immediacy: 

60% of sales are concentrated in three weeks and 75% in the last three months of the year. " 

With a target audience "so special, that changes tastes or preferences in a matter of seconds," adapting is "fundamental, whether manufacturer or distributor."