Is it really that bad that Toys "R" Us is gone?

UPDATE: It was a zombie company, but the manner of its collapse leaves a lot to be desired.

Last Updated: 14 Mar 2018

It's done, Toys "R" Us will disappear from the UK market within the next six weeks. 

The future of the firm has been in some doubt for the past month after it fell into administration in February. It was hoped that a buyer could be found for the 100 UK stores but it wasn't to be and now all stores along with 3,000 jobs will be lost, leaving behind a rather hefty pension deficit.

Unless you’re a business journalist looking for a story or in the market for discount toys and AAA batteries, on the surface there seems to be very few positives from the collapse of Toys "R" Us.

While for other tettering companies like Maplin, which appears to be largely the victim of a macro-factors (it's blaming Brexit and the drop in the pound) there is an element of bad luck, but for the toy seller it is the culmination of decades of failure to adapt to a rapidly changing consumer landscape.

The out of town warehouse stores, unimaginative aisles and a rather annoying backwards R that wouldn’t look out of place in the 90s has helped to drive shoppers away and left the former category killer unable to service its debts. 

Good riddance?

Toys "R" Us became a zombie company. 

It should have died long ago, but instead has lingered on. Profit is a thing of the past, expansion has been non-existent; let's not even mention strategy or direction. The fact that the £15 million tax that tipped the scales relates to something as basic as V.A.T. hints that it's being sinking a long time.

Surely, with this in mind, if  Toys "R" Us can’t turn itself around it is best if it just dies and clears the way for the next generation of innovative retailers to grow into the void left behind. So called zombie companies are maligned for sucking growth out of the UK economy and diverting resources away from more sustainable, faster growing businesses. 

But the problem here is not so much that Toys "R" Us has failed, but how it failed.

In a total collapse of this nature there are few winners. Employees lose their financial security, shareholders lose their investments and debtors (who in this case happen to include the Pension Protection Fund and HRMC) potentially go without payment.

Let’s not forget it also takes time for these new innovative companies to come through, if at all. There is no doubt this will leave a hole.

But at the end of the day what other options were on the table? The ship was sinking and had taken on too much water to be saved. And it wasn't as though Toys "R" Us's management wasn't trying to rescue the company.

The real blame lies with the low interest rates that have allowed poor-performing, debt ridden companies to fester on since the economic crash. There will be more collapses as rates continue to rise.

Yes a household name in British retail is gone, but will the British shopper really miss it? In the case of Toys "R" Us, probably not, but that doesn't help the people who've lost their jobs in the process.

Image credit: Shutterstock/Teerasak Khunrach

 

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