If you're of a certain age, Toys R Us once seemed like a permanent and magical fixture in your life.
And then, in 2017, it abruptly filed for bankruptcy.
To find out who's to blame for Toys R Us's demise, we talked to Lauren Hirsch of the New York Times. She broke the story that the retailer was planning to file for bankruptcy, and was blamed – incorrectly – by some for the company's fate.
The obvious suspect in the death of Toys R Us were the private equity investors who took the company private for $6.6 billion in 2005 and loaded it up with $5 billion in debt. Not only did the debt strain the company financially, but figuring out how to sell toys to fickle children and their semi-annoyed parents takes expertise and making sure the most popular toys are ones that you can only get at Toys R Us requires decades of connections, and that's not exactly the stuff PE execs pick up at Wharton.
But like any good whodunit, the first couple of feints at identifying the culprit turn out to be just that. And the person who really did turns out to have been lurking around the scene the whole time.
Indeed, Toys R Us's fate was arguably already sealed in 2005 when it was taken private – and that's because the company that truly brought it down was by this time already a juggernaut that had syphoning sales from Toys R Us for years: Walmart. It's easy to forget, because retailing in America is a world created by Walmart, just how many companies – Main St. Mom and Pop's, regional chains, big box retailers – Walmart has ethered.
And toys are in some ways a perfect category for Walmart to win and everyone else to lose: it's not a huge revenue driver, but it brings parents into the store and they'll buy other things while they're there so it makes sense to cut prices to levels no one else can.
In the end, Walmart's power was something private equity couldn't match.