Up to 800 jobs are on the line after it emerged that struggling US retailer Toys R Us is looking to close a third of its UK stores.
Toys R Us is understood to be working on a company voluntary agreement (CVA), an insolvency procedure used by retailers to close loss-making stores.
It comes as retailers struggle to coax shoppers to part with their cash in the run-up to Christmas, normally the 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 or buying toys alongside groceries in supermarkets.
Lego, the world’s most profitable toy manufacturer, suffered the first fall in global sales for more than a decade in the first six months of 2017.
Toys R Us’s problems are just the latest sign of high street distress. About 2,500 jobs were lost and a further 900 remain at risk at convenience store supplier Palmer & Harvey earlier this week after it called in the administrators, while furniture chains Multiyork and Feather & Black have also recently filed for administration, putting a further 600 jobs at risk.
Toys R Us’s UK management is understood to be finalising the details of the CVA – first reported by Sky News – which still has to be signed off by its US parent.
Alvarez & Marsal, a specialist adviser on corporate insolvencies, is expected to handle the process, which could see 25 of its 84 permanent UK stores close. Toys R Us trades from more than 100 stores at this time of year, but the figure is boosted by temporary stores opened to cope with the Christmas rush.
Toys R Us has more than 3,000 staff in the UK and the plan to rationalise the business could eliminate between 500 and 800 jobs. The chain 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.
The group’s history dates to the 1950s in the US, but it did not arrive in the UK until 1985. The UK stores earmarked for closure are expected to remain open until the spring and will trade as normal during the Christmas period. Staff will continue to be employed as normal throughout the CVA process.
Gary Grant, managing director of The Entertainer, the UK’s biggest independent toy chain, said the mooted store closures were terrible news for the toy industry. “It’s been a disastrous November for the industry,” he said. “The high street is having an extremely tough Christmas. The stuff [toys] that are hot are hot, but the rest is mediocre.”
In October, it was reported that a number of suppliers had stopped delivering stock to Toys R Us’s UK chain ahead of Christmas because of problems securing credit insurance.