Dive Brief:
- Toys R Us has stopped online retail operations. The bankrupt toy retailer now welcomes visitors to its website with a message that reads: "Thanks for visiting. We have shut down the website for any purchases, but our brick-and-mortar stores are open and holding going of business sales." The site redirects visitors to websites created around the store closings sales.
- Speaking of those store closing sales, not everyone is impressed with the discounts offered. Many shoppers are "complaining" about discounts of only 5% to 10% as the liquidation sales expand to include the retailer's full national Toys R Us and Babies R Us store portfolios, according to Time Inc.'s Money Magazine. That makes some products still more expensive than on Amazon, according to Money.
- The retailer, which announced plans to wind down its entire U.S. business in March, is still trying to save 200 of its top-performing stores as part of a deal for its Canadian business. The company's domestic business and assets go up for auction in April.
Dive Insight:
Welcome to the chaotic end to Toys R Us as the world has known it for the past several decades.
The shuttering of the retailer's online operations represents one more step along the path of full business wind-down as the retailer puts full focus on liquidating store inventories to pay back its debtors. Toys R Us' online business has long been behind competitors, which did not change during a disastrous holiday season when it was outgunned on price and strategy and was plagued by operational bugs.
As liquidators try to run an orderly going-out-of-business process and salvage what value is left in the company's inventory, customers are panicking over unspent gift cards and gift registries in limbo. (Bed Bath & Beyond, which stands to gain from the closure of Babies R Us, is trying to capitalize on that panic, by accepting the retailer's gift cards for a couple weeks.)
Customers are also complaining, as they come expecting deep close-out discounts. But, as Ben Nicholson, president with consulting firm Fortis Business Advisors, points out, "consumers never wholly grasp that liquidations are pure economics mixed with a dose of art, science and psychology." Nicholson said in a note to clients that "items with value sell in fewer quantities at higher prices early in the sale and then transition into items selling at lower prices with velocity and oftentimes in bulk."
"In theory, deeper markdowns are triggered only after the last item sells at an exhausted current markdown price; however, because time is always a factor, controlled variation of this underlying strategy is what ultimately leads to a strong net recovery and preservation of capital," he added.
Meanwhile, Toys R Us is also unloading properties in auction, which has drawn some major names in retail. It's also trying to win a buyer for hundreds of its stores, to preserve some fraction of its domestic business. A toy company CEO is making at least a symbolic effort to buy U.S. assets, and Toys R Us presumably had a prospective buyer when the company told a bankruptcy judge it wanted to attach a couple hundred stores to its Canadian business.
While Toys R Us unloads assets to repay creditors, several vendors, including Crayola, have objected in court to how the liquidation proceeds will be divvied up. Crayola, specifically, alleged that Toys R Us owes it millions of dollars for shipments, which accelerated in January and February, when the toy retailer knew it was on the path to liquidation.
We still know little about how the collapse of Toys R Us will ultimately play out and what, if any, pieces of the company are salvaged. But we will soon, as the bankruptcy timeline winds down.
