Toys “R” Us is planning to close as many as 182 of its stores as it struggles to reorganize in bankruptcy.
The toy chain, which filed for bankruptcy last September, said in a court filing late Tuesday that the stores selected for closing have failed to meet “performance standards.”
The planned closings represent about 20 percent of Toys “R” Us stores in the United States, which span from California to New York.
As many as 4,500 workers could be affected. A spokeswoman said the company would try to find positions in other stores for as many of the displaced workers as they could. It’s unclear how many workers would be able to relocate and commute to another store further from their homes. Terminated workers would be paid severance.
The decision to close stores in the United States represents a shift by the failed toy chain. When Toys “R” Us filed for bankruptcy, it initially kept all of its stores open and hired more workers ahead of the holidays.
But all along, many lawyers and creditors involved in the case had expected that the company would eventually seek to close stores to cut costs, soon after Christmas.
The closings may have been accelerated by what the company said was a rough holiday season. Even as other retailers experienced banner sales in November and December, Toys “R” Us said its sales were disappointing and cited “operational missteps,” which it did not detail.
“I want you to know that we can and will address the gaps in the experience that you have had when shopping this holiday,” the company’s chief executive, Dave Brandon, said in a letter to customers that was released late Tuesday.
Like many other brick and mortar retailers, Toys “R’’ Us has struggled to adjust its business models to deal with the rise of e-commerce. But Toys “R” Us was also drowning in debt.
When the company’s owners — the private equity firms Bain Capital and Kohlberg Kravis Roberts and the real estate investor Vornado — bought the company in 2005 in a leveraged buyout.
Toys “R” Us has followed a familiar playbook of private equity-owned retailers: loading up on debt, now totaling about $5 billion, and then seeking to discharge its obligations and shutter stores through bankruptcy. During the bankruptcy, an army of bankers, lawyers and consultants are being paid large fees to steer the company to solvency.
The company’s lawyers, for instance, told a bankruptcy court they were charging as much as $1,745 an hour for their work on the case.
Late last year, the United States trustee overseeing the case in federal court in Richmond, Va., objected to a proposal to pay its 17 most senior executives up to $32 million in bonuses if the company hit certain financial targets. The proposed bonuses, the trustee said, came on top of the $8.2 million in retention bonuses that five of those executives received immediately before the bankruptcy filing.
“Apparently, this Christmas, Toys “R” Us intends to deliver not only ‘children their biggest smiles of the year’ but the insiders, too,” the trustee, Judy Robbins, said in the filing in late November.
In the court filing on Tuesday, Toys “R” Us sought the judge’s permission to hire a new group of consultants to run the liquidation of the closing stores.
The company said that it anticipated laying off such a large number of workers in such a short period of time that its payroll department might not be able to comply with certain state laws requiring laid off workers be paid immediately after their last day.
Toys “R” Us also said that it would seek to pay bonuses of up to $3.6 million to employees who work at the stores that are closing and help them meet their liquidation targets.