Toys ‘R’ Us stores to close down around Australia as no buyer emerges: Why businesses have to be ready to change

Toys "R" Us

Iconic toy retailer Toys ‘R’ Us is set to officially shut down in Australia, after administrators failed to find a buyer locally for the retail chain despite “a number” of interested parties.

The 70-year-old US-based retailer first announced its troubles after it filed for Chapter 11 bankruptcy in the US last September, which was followed by an announcement in March that the company’s 800 US and UK-based stores were set to close. At the time, it was unknown if the 44 Australian stores would suffer.

However, two months after the announcement, administrators from McGrathNicol announced the stores would be placed into voluntary administration, and that they were “urgently” seeking a buyer. The stores continued to trade throughout the administration process.

Yesterday, administrators Jason Preston, Keith Crawford and Barry Kogan announced they were unsuccessful in finding a buyer for Toys ‘R’ Us and Babies ‘R’ Us stores and its Regents Park distribution centre, despite a “wide range of interested parties”.

“Despite productive discussions with a number of interested parties, all of the parties have now advised the administrators that they have withdrawn from the sale process. Therefore a going-concern sale will not be achieved and the business will now be wound down,” the administrators said in a statement.

“The administrators announce that the [Toys ‘R’ Us] business will be wound down and that all [Toys ‘R’ Us] stores across Australia, together with the head office and distribution centre at Regents Park in Sydney, will close progressively in the coming weeks. The administrators will proceed to liquidate the stock via the store network.”

Tomorrow the store’s online ordering system will be taken offline, with customers’ outstanding orders honoured if they have been paid in full and if stock is available.

Around 700 employees are set to be affected by the closure, and the administrators say employee entitlements are a priority and expect them to be paid back in full.

Failure to keep up led to collapse

Speaking to SmartCompany, senior retail analyst at Retail Oasis Pippa Kulmar says the collapse of Toys ‘R’ Us, both in Australia and abroad, can be attributed to changing competition and a failure for the older brand to keep up.

“A focus on toy sales by discount department stores, and the ability to do laybys during toy sales, ate a lot of Toys ‘R’ Us’ business,” Kulmar says.

“Their business is essentially playing on price, but they were a specialist surrounded by three big discount retailers, and that really hurt them.”

Kulmar believes it is a classic case of a traditional retailer failing to adapt to the rapidly changing modern retail landscape, saying she doesn’t believe Toys ‘R’ Us had thought through a strategy to counter “race to the bottom” price competitions.

“Everybody’s taking a share in specialist categories like toys, but as a specialist [Toys ‘R’ Us was] not innovating or working out how you can out-maneuver them,” she says.

Administrators McGrathNicol has told customers Toys ‘R’ Us gift cards would be honoured until July 5, but with the condition that customers spend an equivalent amount in store.

“In other words, to utilise a $100 gift card in full, customers must spend at least an additional $100 in store,” the administrators said.

For customers, Kulmar believes Toys ‘R’ Us’ collapse won’t change much, but for businesses, she thinks there could be some SMEs hurting from the news of the collapse.

“If they were doing a large proportion of sales, you’re now stuck looking for new points of distribution,” she says.

Year in retail not a bad one

Despite numerous collapses and general pessimism around the Australian retail landscape, Kulmar strongly believes it hasn’t been a bad year for retail – if you’re willing to change.

While traditional retailers have been feeling the heat, businesses who are willing to keep their fingers on the pulse and change quickly when needed are staying strong, she says.

“You’ll collapse if you’re doing what you’ve always done – underestimating competition and not understanding consumers. A willingness to change is essential,” she says.

“Businesses have to change quicker than the market, even if that means closing stores. I feel like the market has hit a tipping point, and that things you could get away with a few years ago you can’t anymore.”

“We’ve reached the point where businesses have got to accept change is business as usual.”

Has your business been affected by the collapse? Leave a comment below, or get in touch at [email protected]

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