Thinking small key to Toys R Us recovery

Thinking small – that’s the key to a Toys R Us recovery, according to CEO David Brandon.

In a briefing at the US-headquartered toy retailer’s Times Square pop-up store, Brandon unveiled what the company has dubbed Project Sunrise – the plan to address a crippling $5 billion debt burden and reposition the company better to fight the rising competition from online retailers and discounters.

Under the plan – which while specific to the US and Canadian operations will likely drive strategies in international markets as well – the company will revamp its larger stores and  focus on reducing the footprints of its standard stores.

Toys R Us US sought Chapter 11 bankruptcy protection on Monday after calling in restructuring experts. It was in part promoted by some suppliers stopping shipments to stores because of growing outstanding payments. Stores outside the US, including the Asia joint venture with Fung Retailing, are unaffected by the Chapter 11 process.

The Wall Street Journal this week reported that suppliers are owed more than $200 million by Toys R Us, with Mattel the worst affected, owed $159 million, Hasbro owed $59 million and Lego owed $32 million.

At the briefing, Brandon promised improved integration of online and offline activities, faster shipping, improved customer service and even increased wages for the company’s 64,000 staff.

A key plank of the store strategy is creating a more experiential environment for shoppers.

“[We want] toys out of the box and into the hands of kids. We know we need to do it,” explained Brandon. “We haven’t had the capital to do it.”

Older stores will get decor and furniture, to incorporate play zones. Provision for in-store activities like hosting birthday parties will be increased.

While some stores which are unprofitable face closure, Toys R Us expects to open new, smaller stores in major cities. More hybrid Toys R Us and Babies R Us stores are also expected.

Toys R Us is currently owned by private equity companies KKR and Bain Capital, together with real estate investment house Vornado Realty Trust after a $6.6 billion buyout in 2005.

Brandon hinted Toys R Us may exit bankruptcy via either a public listing, or the conversion of debt to equity by its lenders, but there are no firm plans at this point.

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