Toys R Us, the iconic American toy retailer loved by millions of Gen X’ers and Millennials, filed for bankruptcy Monday. Don’t worry – it’s not actually going out of business. The bankruptcy was filed under Chapter 11 of the bankruptcy code, meaning the company intends to restructure itself financially and keep most of its stores operating. So you can still shop there, not that you’d want to. The Toys R Us shopping experience of the 1970’s and 1980’s has long since disappeared. Back then the stores had play areas where toys could be tested out before buying. The stores were laid out in a mind-boggling array of temptations for children, unlike your traditional local toy stores, usually named “Geppetto’s Toyshop,” and which were small, more expensive, and doomed to extinction once a big-box retailer like Toys R Us came to town.
Toys R Us stores today are a shadow of what they used to be. They are often dingy, disorganized, unexciting, and very over-priced compared to alternative shopping venues. What went wrong? This is a cautionary tale that involves some classic misjudgments on behalf of management, but mostly this is a story of greed. Toys R Us was a victim of three of the biggest and most rapacious equity and asset stripping predators: Kohlberg, Kravis and Roberts (KKR), Mitt Romney through his firm Bain Capital, and Stephen Roth of Vornado Realty Trust, a man who now has his hands around the throat of Jared Kushner and his ill-fated investment on 666 Fifth Avenue.
To see what went wrong, we have to return to those exhilarating days of the last decade, when the housing bubble was in full bloom.