PRINCIPLES OF ENTREPRENEURSHIP

(ENT530)

WRITTEN REPORT ON CASE STUDY

(The Bankruptcy of Toys R Us)

NAMES : 1. Azreen Binti Shaiful Bahari

(2017623166)
2. Nurul Izlin Binti Mat Razi
(2017623184)
3. Muhammad Amirul Bin Amran
(2017623126)
4. Najah Nasirah Binti Mohd Lutfi
(2017623038)
5. Siti Nurbaya Binti Alias (2017445046)
6. Nur Diyana Binti Johamis
(2017623256)
CLASS : LG2402Ai
LECTURER : Madam Aida Azlina Mansor

DUE DATE :

2nd May 2018

1.0 Executive Summary
2.0 Introduction

2.1 Background of the study

The reason we choose to conduct a study on Toys R Us is because we

wanted to identify and analysis the reason behind the company’s
bankruptcy and the causes.

2.2 Purpose of the study

Toys R Us bankruptcy could be analyzed to determine the best solution

that could avoid the company from falling into bankruptcy and the major
problem leading to it.

2.3 Problem statement

The study addresses the factors that leads to the bankruptcy of Toys R Us
which is due to weak management, poor marketing strategies, high
competency with rivals and inability to keep up with the modern
technological advancements. The most significant reason that leads to the
liquidation of the company, involves the imbalance of private equity (EP)
among the PE investors and unsustainable debt (Jenner, M. H, 2015)

2.4 Assumptions

It is assumed that Toys R Us faced bankruptcy due to several reason which is

imbalance private equity (PE), bad timing of filing for bankruptcy,
competitors dropping low-marginal discounts and heavy debt load.
3.0 Company Information

3.1 Background of the company

Toys R Us originated from Children’s Bargain Town, a baby furniture store

started by Charles Lazarus in Washington D.C. in 1948. It is a private retail
company specified in toy business and hails under a parent company named
Interstate Department Stores. Around 1600 stores has been opened in and
outside of US. The company is also known by its cartoon mascot giraffe from
1969. The company expanded its wings by establishing worldwide presence
with the opening of its first wholly-owned store in Canada and licensed
operation in Singapore. Then the company branched out into children’s
clothing and launched its division known as Kids R Us and Baby R Us stores.
As the modern world progresses with wide use of technology, Toyrus.com
was introduced and became the fastest-growing site for the toy and baby
products shopping categories. Lazarus leveraged pre-mall, pre-discount store
days, speciality retailing and off-price positioning to his advantage, making
Toys R Us a predominant toy retail chain business. Toys R Us eventually
branched out and launched Babies R Us and now-defunct Kids R Us.

3.2 Organizational structure

Toys R Us has 1 president, 1 legal staff, 1 research director, 2 treasurer, 2

sales promotion manager, 2 general merchandise manager, 3 operation
managers and 2 main branch store manager.
4.0 Company Analysis
5.0 Findings and Discussion
5.1 Findings
 Bankruptcy

Bankruptcy is defined as a legal proceeding that involves a person or a

business that is unable to repay outstanding debts. Toys R Us are well-known
for it’s toys kingdom however the venerable retailer is in bankruptcy and
need to begin the liquidation process orderly. This is where the business shut
down their stores and sell off everything that could be sold. It would then be
hand over to the creditors. The reasons behind the bankruptcy are highlighted
as followed :

1. The Company’s debts were too much to bear.

In 2005, Bain Capital and other firms took the company private and it
cause Toys R Us to deal with acquired debt. The company still have $5
billion liabilities when it approached bankruptcy in 2017. According to
(Bernstein, n.d.), Toys R Us was “starting at an inherent disadvantage
because of the debt load.”

2. Competitors

The company was faced with a tight competitive business environment

by Amazon, Walmart and Target. These competitors used discount
strategies especially during the holidays season. This gave Toys R Us a
slight disadvantages as it cause the company to loose profits. The
competitors priced their toys at low-margins during the season and even
offered alternatives such as online shipping. It ia a drawback for the
company as they could not compete with the prices because they rely
solely on the toys selling profits.
5.2 Discussion

Toys R Us known as one of the world’s largest toy store chains was forced to
face with bankruptcy due to unbearable debts and competition from competitors.
There are a few alternatives solutions to these major problems :

1. Chapter 11 Bankruptcy

Chapter 11 bankruptcy is frequently used by corporations, sole

proprietors and partnerships. It gives them an opportunity to reorganize
their company, stay in control of assets that they have, and able to
negotiate a payment plan with their creditors for lesser amount of their
original debts. It is important for all parties to agree on the repayment
plan which is considered as the best option for companies that wanted to
continue operating.

2. Documentation

It is essential for a company to maintain their records after filing for a

bankruptcy. The company have to hold to both their petition for
bankruptcy as well as the discharge order. These records could be used
as a proof that the company is no longer owe any discharged debts.
6.0 Conclusion
7.0 Recommendation and Improvement
8.0 References

McArdle, M. (2018, March 11). Toys R Us still sells lots of toys here’s why it’s
going under. The Washington Post. Retrieved April 22, 2018, from
http://www.washingtonpost.com/opinions/toys-r-us-still-sells-lots-of-toys-heres-
why-its-going-under/2018/03/11/ab4721b8-2538-11e8-b79d-f3d931db7f68_story
. Html

Bankruptcy solutions for businesses. Leiderman Shelomith Alexander

Somodevilla. Retrieved April 22, 2018, from http://Lsaslaw.com.my

Corkery, M. (2017, Sept 19). Toys R Us files for bankruptcy, crippled by

competition and debt. The New York Times. Retrieved April 22, 2018, from
http://www.nytimes.com/2017/09/19/business/dealbook/toys-r-us-bankruptcy.htm
9.0 Appendices

Appendix I : The founder of Toys R Us, Charles Lazarus.

Appendix II : Toys R Us selling off their toys due to bankruptcy.

Appendix III : News on the company’s bankruptcy.

Appendix IV : The Toys R Us Revenue.