Thursday, March 15, 2018

IHeartMedia bankruptcy

Another major bankruptcy filing today: IHeartMedia, the largest radio station operator, is in bankruptcy. This was expected and unavoidable as the company took on enormous debts to buy radio stations at the same time that radio is losing its reach. The interesting thing about this case is that it is not entirely clear that broadcasting licenses survive bankruptcy. Business leaders have always assumed so but this theory has not been thoroughly tested. The company says it will continue to operate normally and pay all its bills.

Trends are working against IHeartMedia in the long run, but for now it has cash flow and has some potential to cut costs through further automation.

The common element in the Toys ‘R’ Us and IHeartMedia bankruptcies is that both companies are swimming against the current when it comes to cultural trends. Radio is declining in mind share and cultural influence in much the same way that toys are.

Wednesday, March 14, 2018

Toys ‘R’ Us to Close All Stores

Word came this morning that the Toys ‘R’ Us U.K. subsidiary was unable to find a buyer and will close all stores within six weeks. From BBC News:

This announcement was expected after the subsidiary entered administration. Now that it has come to pass it carries the air of inevitability given the complexity of the Toys ‘R’ Us business arrangements and a wave of retail failures in Britain. Other reports from Britain indicate that layoffs at the stores started as soon as the announcement was made.

Meanwhile in the U.S. a bankruptcy liquidation court filing is expected early this evening. That plan would most likely lead to the closing of the remaining U.S. Toys ‘R’ Us stores and the web store.

There is a chance that stores in Canada could stay open. According to Bloomberg, toy manufacturer MGA (owner of Bratz) is trying to find investors to fund a bid for the Canadian operations, which are also in bankruptcy but have not faced quite the same level of operational stress as the U.S. and U.K. companies. Such a bid could also include a few U.S. stores and the web store. Time is short, though, and a credible bid might not be forthcoming if partners for the venture cannot be lined up by tonight.

Toys ‘R’ Us acknowledged the long odds it faces when it told employees late today that probably all U.S. stores, some 800, will close, and all employees, more than 30,000, will lose their jobs.

Update: Toys ‘R’ Us filed its petition to liquidate after midnight. The petition implies a quick liquidation of most stores. It suggests that there is a good chance that all Canadian stores remain open. USA Today:

Tuesday, March 13, 2018

Toys ‘R’ Us Stops Talking to Vendors

Sources associated with Toys ‘R’ Us suppliers told Bloomberg that payments from the company have stopped,

they can’t get anyone at Toys “R” Us to respond to questions [and the company] recently stopped negotiating settlements with vendors . . .

The Bloomberg story:

While nothing is definitive until it shows up in a bankruptcy court filing, this news is consistent with the recent narrative of a company on the verge of liquidation. There were rumors on Sunday that a liquidation plan would be filed on Monday, and that did not happen, but if a retailer is cutting off its suppliers, it cannot carry on for much longer than another week.

Update: Lauren Hirsch at CNBC writes of a Toys ‘R’ Us liquidation, “The retailer could file as soon as the end of Wednesday.”

Thursday, March 8, 2018

Toys ‘R’ Us Prepares for Liquidation

Toys ‘R’ Us is preparing to liquidate, according to sources who spoke to three Bloomberg reporters. The story posted this evening is “Toys ‘R’ Us Is Prepping to Liquidate Its U.S. Operations”:

Toys “R” Us Inc. is making preparations for a liquidation of its bankrupt U.S. operations after so far failing to find a buyer or reach a debt restructuring deal with lenders, according to people familiar with the matter.

Tuesday, March 6, 2018

Lego Decline Is Not a Trend

Sales fell at Lego, but it is not a trend. Lego was limited by excess inventories at the same time that Toys ‘R’ Us was careening into bankruptcy in two countries. Demand for Lego now follows a movie-release cycle, and the next Lego movie is still a year or more away. Over the next few years Lego will continue to benefit from the urge to build things that are material and three-dimensional to balance out a consumer experience that is increasingly digital.