Toys R Us confirms plans to shut at least 26 UK stores

Struggling US retailer Toys R Us has confirmed plans to close to a third of its permanent UK stores but says all the branches will remain open through Christmas and the new year.

Up to 800 jobs are on the line with the potential closure of at least 26 of Toys R Us’s 84 permanent UK stores from spring next year.

Steve Knights, managing director of Toys R Us UK, said the company had to take “strong and decisive action” as its largest warehouse-style stores opened in the 1980s and 1990s were “too big and expensive to run in the current retail environment”.

On 21 December, Toys R Us will ask its creditors to approve a company voluntary agreement (CVA), an insolvency procedure used by retailers to close loss-making stores. The process, which will reduce its rental bill partly by closing stores, is being handled by Alvarez & Marsal, a specialist adviser on corporate insolvencies.

“Like many UK retailers in today’s market environment, we need to transform our business so that we have a platform that can better meet customers’ evolving needs. The decision to propose this CVA was a difficult one, but we determined it is the best path forward to make essential changes to the business,” Knights said.

“Our newer, smaller, more interactive stores are in the right shopping locations and are trading well, while our new website has generated significant growth in online and click-and-collect sales. But the warehouse-style stores we opened in the 1980s and 1990s, while successful in the early days, are too big and expensive to run in the current retail environment. The business has been loss-making in recent years and so we need to take strong and decisive action to accelerate the transformation.”

He said there would be no changes to the returns policies or gift cards across this period.

The company’s restructure comes amid a tough run-up to Christmas, traditionally the retail sector’s busiest period of the year. Experts said November had been a disastrous month for the toy industry, with sales down 10% and profit margins under pressure from excessive discounting.

Toys R Us is a subsidiary of the eponymous US chain, which filed for bankruptcy protection in September after running up $5bn (£3.7bn) of debts. The collapse came more than a decade after a $7.5bn leveraged buyout by private equity firms KKR, Bain and Vornado.

The UK business has been struggling for the same reasons as its parent, as shoppers shun the large out-of-town sheds that are synonymous with the Toys R Us brand, in favour of shopping online. Meanwhile competition from supermarkets and the likes of Argos has ramped up.

Toys R Us UK has been loss-making for seven out of the past eight years, with the most recent accounts filed at Companies House showing an operating loss of £500,000 on sales of £418m in the year to January.

In October, it was reported that a number of suppliers had stopped delivering stock to Toys R Us in the UK ahead of Christmas because of problems with credit insurance.

Toys R Us’s problems are also another sign of a high street in distress. About 2,500 jobs were lost and a further 900 remain at risk at convenience store supplier Palmer & Harvey, which called in the administrators last week, while furniture chains Multiyork and Feather & Black have also recently filed for administration, putting more than 600 jobs at risk.

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