Media reports suggest that the Toys ‘R’ Us U.K. subsidiary is likely to go into administration very soon, either today or tomorrow. Despite reaching an agreement with creditors in December to allow it to stay open, the insolvent toy giant has failed to find a buyer. It no longer has any support from its bankrupt U.S. parent company. It has no funds to pay a delinquent tax bill with an effective deadline of March 1. The retailer is currently conducting store-closing sales in a fraction of its stores. With no source of cash, administration is its only option.
The likely outcome of administration is that all Toys ‘R’ Us stores in the U.K. will close by June. All inventory will be sold off, most of it to the public at going-out-of-business sales. Shelves at Toys ‘R’ Us stores in the U.K. are said to be as bare as those I have seen in the U.S., so there is not a mountain of toys to liquidate. Proceeds from the liquidation will pay the tax bill in full, but there will be little left over for pension funds, bondholders, and other creditors. Some 3,000 jobs will be lost.
The prospect of liquidation of the U.K. subsidiary casts more doubt on the parent company which operates Toys ‘R’ Us and Kids ‘R’ Us stores in the U.S. The U.S. company is in the process of closing 20 percent of its stores in bankruptcy, similar to the U.K. store closings. It faces most of the same challenges seen in the U.K. It has given no hint of a business plan that would allow it to emerge from bankruptcy, and time will run out on that process in a matter of weeks, so that a liquidation appears increasingly likely for Toys ‘R’ Us in the U.S.