At ‘Toys R Us’ Going Out of  Business is Good for Business

“Going out of business, is good for Business”, Adam Sandler as Zohan (Photo: Sony Pictures Entertainment/amazon media)

The demise of retail giant Toys R US might be bad news for former employees, investors, and shoppers, however, it is not bad news for everyone, mainly bankruptcy lawyers.

As former customers lamented on social media over the closing of this iconic children’s paradise, recalling childhood and family memories of visiting their favorite toy store, and former workers learned they not receive severance pay, bankruptcy lawyers are anxiously awaiting a $348 million windfall in payments from the toy retailer.

The toy retailer is expected to pay $348 million to dozens of bankers, lawyers and consultants who tried to fix the company’s problems. Bankruptcy professionals get priority and are largely assured of getting paid as other creditors fight to get their share, the New York Times reported.

“The fees have been increasing, and there is no effective means to control them,” Lynn LoPucki, a bankruptcy professor at the University of California, Los Angeles, told the Times.

The NY Times reported that workers say they will not receive severance, even though many say they were originally promised modest payouts. “This aggravates me so much,” said Tracy Forbes, a manager at a Babies “R” Us store in Phoenix told the Times. “These people are getting rich, and we are getting nothing after keeping this company going for 60 years.”

Toys R Us has not had an annual profit since 2013. It reported a net loss of US $164 million in the quarter ended April 29, 2017. It lost US $126 million in the same period in the prior year. In January 2018, the company announced it would liquidate and close to 182 of its stores in the U.S. as part of its restructuring, however in March, they announced the closing of all of their UK stores and a few hours later announced the closing of all of their US locations. They shut down all online business at the end of March, and as of press the remaining locations are still having massive liquidation sales.

Several investors over the past month have attempted to purchase some of the remaining stores including CEO of MGA Entertainment, Isaac Larian, thus far nothing has officially materialized. On April 21, 2018, it was announced that UK and Irish rival Smyths would purchase Toys “R” Us stores in Germany, Austria and Switzerland.

The Lehman Brothers case bankruptcy ended up costing $1 billion in legal fees paid out bankruptcy lawyers, bankers and consultants. Toys R Us is nowhere near the scale of a financial giant like Lehman’s bankruptcy, however a nice chunk of change will be collected when it is all over with. As a Character in the comedy “Don’t Mess with the Zohan” told Adam Sandler: “going out of business is good for business”.

By Jared Evan

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COMMENTS
  1. Your point about the incidental benefits to lawyers and accountants is very true. However hidden in the company’s posting of losses in 2014 and onward were $450-550M in debt repayment due to the leveraged buyout. The company continuously made debt repayments through almost 10 years. Your article suggests that it was an unprofitable company and that was strictly not true. The onerous leveraged buyout took all profits away from the company as most often happens in these financial arrangements. It is less about the company being viable and more about the ridiculous terms provided them in the buyout.

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