I paid for my purchases – a large box of overnight Huggies for my toddler, and two large Lego Duplo sets we don’t need – with $110 from a gift card, and $15 from a credit card. I felt a little relieved to use up the gift card before the 30-day deadline, when gift cards would lose their value.
As the clerk accepted my payments, my husband and I continued our running debate about the Toys’R’Us bankruptcy. What assets would be valuable to a company like Amazon. What could have been done to save TRU. As we collected our three boxes and turned to leave, the clerk quietly asked a question: “Why don’t people come in to shop anymore? I don’t get it.”
I felt immediately sympathetic and a little bad. The most I had to lose in the TRU bankruptcy was $110 of unused gift card currency and some nostalgic value. This poor woman was about a month away from losing her job. “It’s convenient,” I said somewhat apologetically. “It all just shows up on your doorstep.”
She looked genuinely confused. “But how can you buy everything without seeing it first? Like I once ordered shoes online and when they came I didn’t like them so I took them back to the store.”
She had a point. Most things that we have not already selected are better purchased in person or at least not on Amazon.com. A good buyer and merchant team can provide an excellent selection of tempting options at retail – although US retail has only a few fleeting examples where this happens at scale.
I wished her good luck, and we left the store – the whole chain – for ever.
I am regretful. I accepted the woman’s premise that Amazon is the reason for TRU’s demise. That’s not the whole story though. Amazon was clearly a formidable competitor that TRU wasn’t able to effectively counter. But TRU had its hands tied long before Amazon became a powerful seller of toys. TRU was saddled with a tremendous debt load so that it could be a cash machine for its new owners. There was little room for reinvestment or change under private equity owners Bain Capital, KKR, and Vornado, even if TRU had had good leadership (which unfortunately, large retail chains often do not). So when the tides of change in mass retail came in more quickly in recent years, TRU could not respond. That’s why it is dying.
That’s also why Nine West filed for bankruptcy on April 6. And Claire’s in March. The list goes on.
I get why private equity bought these large retail chains, and why the banks let them put so much debt on them. It’s easy to view retail stores as cash machines. They generate lots of cash. If management is skilled at optimizing their inventory and cash, retail companies can benefit from paying their bills after they have already collected payment from customers. But like most organizations, for profit or not, they have to keep up with the times to remain strong. Saddling them with huge debt and taking all their cash makes it hard for them to change and grow.
That’s the story that I wish I could have told our cashier.
But if I had, I doubt it would actually have been very helpful. Virtually nobody can reverse the tide. There are many more bankruptcies to come. And the folks who are causing them get to walk away while the folks at the registers lose their jobs.
That’s just not right.
For further reference, Business Insider provides good overviews: http://www.businessinsider.com/why-toys-r-us-is-closing-stores-2018-3