Toys “R” Us, the beleaguered chain under pressure from Amazon and bigger toy sellers, may close dozens of more stores as it struggles to find a path out of bankruptcy and return to financial viability.
The toy retailer has not recovered from a dismal holiday selling season, making the company’s difficult situation even worse. Now, it is under pressure to demonstrate to its lenders that it has a realistic strategy for flourishing in the ultracompetitive toy industry.
One plan under discussion includes shutting down close to 200 stores, and possibly more, according to people briefed on the matter, who were not authorized to speak publicly.
While the planning is fluid and far from completion, the possible store closings, which were reported earlier by The Wall Street Journal, reflect the serious challenges that Toys “R” Us faces.
“If you look at the numbers, it doesn’t look good,” said Richard Gottlieb, an analyst and the publisher of Global Toy News. “And it appears that some dramatic action is going to have to take place.’’
Toys “R” Us has already been taking steps to stabilize its business. Last month, the company said it was shutting down 182 stores, affecting 4,500 workers.
It is not clear whether any additional closings would occur in the United States, or overseas. The company operates about 800 stores in the United States.
Even as other retailers experienced strong holiday sales, Toys “R” Us cited undisclosed “operational missteps” in explaining its poor performance.
Analysts say the company’s biggest problem stems from its filing last year for Chapter 11 bankruptcy protection, after its private equity owners left it saddled with $5 billion in debt.
The bankruptcy filing, only months before Christmas, left many shoppers with the impression that the company was shutting down, even though it planned to keep all its stores operating through the holidays, said Jim Silver, the editor of TTPM, a toy review website.
“There was too much consumer perception that they were not going to be around, and it hurt their traffic incredibly,” Mr. Silver said. “When you are buying toys, you want to know you can return them and your gift cards will work.”
Another big challenge came from competitors like Walmart and Amazon, which pushed toys heavily during the holiday season, just as Toys “R” Us was struggling to win back customers and calm jittery vendors.
Toys “R” Us is entering a crucial time, as it prepares to buy toys to sell for the next holiday season. It needs to persuade its lenders, which have extended money to the company in bankruptcy, to keep that spigot flowing. But lenders need to know that the company is viable over the long term.
Analysts say that a primarily bricks-and-mortar toy retailer can succeed, but that its stores have to be smaller, unlike the hulking Toys “R” Us facilities that dot suburban strip malls.
“A toy store needs to be fun and engaging and interactive,” said Mr. Silver. “Toys “R” Us has been talking about better customer service and experiences, but they never really transpired.”