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The Fall of a Giant – Toys R Us in administration, what now?

Thursday 1 March 2018
by Sandra Mundy - Partner

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The administration of Toys R Us should be no surprise given its US parent filed for bankruptcy protection in September 2017. The fall of this giant could mark the end of an era for those older companies who just cannot keep up with the onward march into the digital age.

What could the causes be?

As well as rising costs faced by other businesses such as an increase in the National Minimum Wage, auto enrolment and the apprenticeship levy, the retail sector also has to contend with the fast moving pace of changing consumer habits including the preference for online retail giants and funky smaller outlets in shopping complexes.  

The real reason for the demise of this iconic brand may be as a result of having invested heavily in warehouse-style outlets which are no longer as attractive to shoppers. Toys R Us’s inability to adapt, along with a fall in profitability, and the fact that the company could not pay its creditors (including a £15m tax bill) has culminated in its administration.

Long established retailers may on the face of it appear unprepared for changing consumer habits however, on closer inspection such retailers are probably tied to long-term leases in what appears now to be less than desirable locations. 

There are still things that such retailers can do to attract shoppers however, they need to be inventive as competing on price is unlikely to be a viable option in the long term.  

Entertainment in shopping seems to be a growing phenomenon and perhaps lessons can be learned from the Disneyland queuing system, where children are entertained, as this could be very attractive to the tired parent looking for somewhere to take demanding children. Add into the mix a smart coffee shop and suddenly you have changed a tired warehouse styled outlet to a must go to destination.

What happens next?  

  • Retention of Title Claims
    Speed is of the essence for trade suppliers that are owed money to make a retention of title claim (ROT). ROT creditors should contact the administrators to identify goods in order to secure payment for stock used during the administration trading period. 
  • Gift cards
    The UK administrators have said that they are honouring gift cards and therefore gift card holders may be wise to redeem them now whilst trading continues, as it is uncertain what will happen if trading ceases or the business is sold.
  • Pensions
    The company’s pension scheme has a shortfall of £38m but the Pension Protection Fund (PPF) will now step in to protect the interest of pensioners.  Retirees will continue to receive 100% of their pension payments and for those not yet drawing a pension the PPF will fund 90% of their entitlements.

For more information on insolvency or administration, or if your business has been affected please contact us by making an enquiry or on the details listed above.

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