Toys 'R' Us Could Start Liquidation Sales Soon
CHICAGO (CBS) -- Toys R Us could begin liquidation sales at its stores on Friday.
The company has announced it's shutting down or selling all 735 of its U.S. stores. It originally planned to start liquidating the inventory at all its stores on Thursday, but has delayed those sales at least until Friday.
Shoppers looking to snag a bargain should act fast when the sales start.
"It will be quick," said Chuck Tatelbaum, a director with Tripp Scott, a Florida law firm, on how quickly the shelves will empty. "No more than 60 days, closer to 30 days."
Debt company walking
Toys "R" Us fell prey to a crushing debt load of $5 billion stemming from its 2005 leveraged buyout by private equity firms Bain Capital and KKR (KKR), and real estate investor Vornado Realty Trust (VNO). The deal was ill-timed, saddling the retailer with loans as shoppers were shifting their spending from big-box stores that defined the previous era in retail to the internet.
The company's current leadership only compounded its mistakes by failing to act quickly and decisively. One example: When Toys "R" Us first declared bankruptcy in September, CEO Dave Brandon vowed not to close any stores, blithely remarking that "today marks the dawn of a new era at Toys "R" Us." He was wrong.
Amazon effect
Toys "R" Us lost market share to rivals, including Amazon (AMZN), in recent years.
"Toys are particularly vulnerable to the Amazon effect because Amazon thrives with products that are known and you can buy in lots of places," said Aaron Shapiro, CEO of digital marketing and consulting firm Huge. "Therefore people will buy just buy (them) wherever it's cheapest and the most convenient."
Michelle Steinberg, Founder of domain Integrated, a branding firm, also said Toys "R" Us had trouble attracting employees, as Walmart (WMT) and other retailers raised wages.
Let the pink slips fly
Roughly 33,000 Toys "R" Us workers in the U.S. could ultimately lose their jobs because of the company's liquidation. That would be the most retail industry layoffs since Circuit City shut down in 2009, which cost 34,000 jobs, according to Challenger, Gray & Christmas. The largest retail sector layoff since 2015 happened in 2016 when Walmart shuttered 269 stores and laid off 25,000, the career services firm says.
Puny parachute
Toys "R" Us is offering salaried and hourly employees the equivalent of 60 days in pay and benefits. That's more than many employees get when companies fail. "[T]here is no fixed rule that says, 'Thou shalt pay severance' in a total liquidation," said Stephen Selbst, chair of the restructuring and bankruptcy practice at law firm Herrick, Feinstein, which specializes in retail industry bankruptcies.
If it makes rank-and-file workers at the company feel better, top executives are unlikely to get bonuses, he added.
Is my gift card still good?
Senator Chuck Schumer, D-New York, on Thursday asked the Federal Trade Commission to ensure that Toys "R" Us honors its unused gift cards. The retailer is continuing to honor them for the next 30 days along with rewards points.
Still, it's not clear how long that will remain the case. "As a legal matter, Toys isn't required to honor those gift cars," Selbst said. "If I had a gift card, I would use it as quickly as I could. Don't let it gather dust."
World of hurt
The bankruptcy filing doesn't cover Toys "R" Us' international business, but it's struggling, too. The company's U.K. business on Wednesday announced that it is closing its doors after failing to find a buyer -- about 3,000 people will lose their jobs. Toys "R" Us is considering combining as many as 200 of its top-performing U.S. stores with its Canadian operations, but Selbst said that would be complicated, expressing doubt it will fly.
Related: Your Toys 'R' Us closing questions answered
The more popular and favorite toys tend to move the fastest, and inventory is likely already slim.
"The [stores] haven't gotten a lot of new inventory in the last month or two, so a lot of the popular things have probably already sold out," said Tatelbaum.
Consumers with Toys "R" Us gift cards and Endless Earnings e-gift cards should also hurry. The retailer will honor these forms of payment until April 20. Stores will no longer accept coupons or other rewards.
Stores will accept returns on products purchased before the liquidation for the next 30 days. All purchases made after liquidation sales begin are final, which means they cannot be returned or exchanged.
Related: Local toy stores are thriving as Toys "R" Us is dying
Consumers planning on going to the store for one last walk up and down the aisles to reminisce could face a different reality.
"People will go for one last time, but I am not sure it will translate into buying," said Tatelbaum. "I think you are going to find a general malaise — not happy and joyful employees ... this is going to be almost like a wake."
The company has been posting job openings recently for temporary positions to help during the liquidation process.
But the store closings mean that around 31,000 employees will ultimately be laid off.
(© Copyright 2018 CBS Broadcasting Inc. All Rights Reserved. CNN contributed to this report.)
