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Report: Toys ‘R’ Us preparing liquidation plan

Toys “R” Us is reportedly getting closer to winding down U.S. operations.

The toy giant is in the process of drafting the court motion for its liquidation plan, which it could file as early as the end of day on Wednesday, CNBC reported, citing a source familiar with the situation. A liquidation is likely to result in the closing of all Toys “R” Us U.S. stores.

The retailer filed for bankruptcy in September, and went on to experience a disappointing holiday selling season, citing “operational missteps.” According to the report, Toys “R” Us has come under increased pressure and its low cash balance left it at risk of breaching the terms of its bankruptcy loan. This week, the retailer missed a payment to some of its vendors, CNBC said.

Toys “R” Us has struggled under increased competition from Amazon, Walmart, Target and others. But a big part of its problem stems from its heavy debt load, which dates back to 2005, when the retailer was purchased by private equity investors KKR, Bain Capital, and Vornado Realty Trust in a $7.5 billion buyout. Toys “R” Us has struggled to update its offerings and processes, both online and in store, and has lagged behind its competitors digitally as its debt has put a strain on its ability to invest in its business.

In February, The Wall Street Journal reported that Toys “R” Us was planning to shutter an additional 200 stores and lay off a significant portion of its corporate staff. This came after a court filing in January in which the chain said it was planning to shrink its U.S. store portfolio by as much as 20% — about 180 locations — as part of a plan to emerge from bankruptcy before the 2018 holiday season.

Toys “R” Us’ liquidation would be a big blow for the overall toy industry, as the chain makes up about 15% of U.S. toy revenue, Bloomberg reported.
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