What Happened To: Toys "R" Us — Case File 003

Filed by: The What Happened To Archivist | Status: Closed — June 2018 | Tags: Toys R Us, retail, private equity, KKR, Bain Capital, 90s childhood, Geoffrey the Giraffe

At its peak, Toys "R" Us controlled 25 percent of the entire global toy market and sold 18,000 different products across 1,450 stores worldwide. It didn't lose to Amazon. It was killed by the people who owned it.

The Man Who Invented the Toy Store

It's 1948. Charles Lazarus is 25 years old, recently back from World War II, and paying attention to something nobody has named yet. His friends are getting married. They're having children. The baby boom is coming, and Lazarus can feel it before the phrase exists.

He opens a baby furniture store in his father's bicycle shop in Washington, D.C. He calls it Children's Supermart. He sells cribs and strollers and high chairs. And then he notices something that changes everything: parents keep coming back to buy toys, but they don't come back to buy a second crib.

Toys, he realises, are a renewable business. Children grow out of them. They break them. They want new ones. Furniture you buy once. Toys you buy forever.

In 1957, he opens a dedicated toy store in Rockville, Maryland. He designs the logo himself — the backwards R, styled to look like a child wrote it. He calls it Toys "R" Us.

The concept is new: a supermarket for toys. Not a department store with a seasonal toy section. Not a small family shop with a limited stock. A massive, year-round warehouse of every toy in existence, organized like a grocery store, priced aggressively, and restocked constantly. Lazarus used his volume to negotiate better prices than any competitor could match, making Toys "R" Us the first true "category killer" in retail history — a store so dominant it simply drove everyone else out of the category.

Mom-and-pop toy stores couldn't compete. Department stores lost their seasonal toy revenue. By the early 1980s, Toys "R" Us had passed $1 billion in annual sales. By the height of its power, it controlled 25 percent of the global toy market.

What It Actually Felt Like

If you grew up in the eighties or nineties, Toys "R" Us wasn't a store. It was a destination. A place you were taken to, not brought to. The distinction matters.

The scale of it was the point. Aisles that went on forever. Entire sections devoted to a single category — action figures here, board games there, video games along the back wall where the carpet changed colour. The fluorescent lights. The slightly overwhelming smell of plastic and cardboard. Geoffrey the Giraffe watching from every available surface.

The flagship Times Square store, which opened in 2001, had a 60-foot indoor Ferris wheel, a life-sized Barbie Dreamhouse, and a 34-foot animatronic T. rex". It was, as one analyst described it, "every little child's dream manifested physically in this grand place, with toys — endless aisles of toys."

The jingle was inescapable. I don't wanna grow up, I'm a Toys "R" Us kid. It was designed to articulate exactly what the store promised: that childhood, the specific texture of it, lived here. That you could come back to it. That it would still be there.

That was the brand. Not toys. The permanence of childhood wonder.

The Deal That Doomed It

In 2005, with Toys "R" Us facing increased competition from Walmart and Target, its board put the company up for sale. Three buyers came forward: private equity firms Bain Capital and KKR, and real estate investment trust Vornado Realty Trust.

They bought the company for $6.6 billion in a leveraged buyout. Here is how a leveraged buyout works: the buyers put up a small portion of the money themselves and borrow the rest from banks. Then — and this is the critical part — they transfer that debt onto the company they just bought.

Bain, KKR, and Vornado put up approximately $1.3 billion of their own money. The remaining $5 billion was borrowed — and then placed on Toys "R" Us's balance sheet. The company that had been bought now owed the money used to buy it.

From that point on, Toys "R" Us was paying $400 million per year just to service its debt. Every year. $400 million. Before a single toy was purchased, before a single employee was paid, before a single store was maintained or modernised or given a functional website.

Amazon was growing at this exact moment. Between 2005 and 2010, Amazon's annual sales quadrupled. It moved aggressively into toys. To compete, Toys "R" Us would have needed to invest heavily in its e-commerce infrastructure, its stores, its supply chain. But there was no money to invest. It was all going to the debt.

The private equity firms, meanwhile, collected management fees from Toys "R" Us regardless of the company's performance. Bain and KKR each took home at least $15 million in fees. The company that was suffocating under their debt was simultaneously writing them cheques.

Toys "R" Us attempted to go public in 2010 to raise capital and pay down debt. The IPO was cancelled in 2013, citing market conditions. There was no escape route.

The Bankruptcy

On September 18, 2017, Toys "R" Us filed for Chapter 11 bankruptcy. The company framed this as a restructuring — a chance to deal with the debt, invest in operations, and emerge stronger. It was still generating $11.5 billion in annual revenue. The stores were still busy. The brand was still beloved.

Then came the 2017 holiday season.

The bankruptcy filing had spooked suppliers. Many were shipping to Toys "R" Us on assurances backed by its bankruptcy financing. When the company breached the financial covenants attached to that financing — targets that creditors later argued were impossible to meet from the start — the whole structure collapsed.

On March 15, 2018, Toys "R" Us received approval to liquidate. Not restructure. Not sell to a buyer. Liquidate. Close everything. Extract whatever value remained from the inventory and the real estate.

Liquidation sales began on March 23, 2018. The shelves emptied. The signs came down. The yellow and red and blue went dark.

Charles Lazarus, the man who had started it all with a baby furniture store in his father's bicycle shop, died on March 22, 2018 — one day before liquidation sales began. He was 94. He did not see the last store close.

The Workers Who Got Nothing

When Toys "R" Us liquidated, more than 33,000 employees in the United States lost their jobs. The company had a long-standing severance policy: one week of pay for every year of service. In liquidation, that policy meant nothing.

The workers were owed an estimated $75 million in severance. They received zero.

A coalition of former employees organised and fought back. They took more than 150 actions across 20 states. They lobbied elected officials and pension funds. They testified before Congress. In late 2018, under sustained public pressure, KKR and Bain Capital created a $20 million assistance fund for former workers — a sum widely described as a gesture rather than restitution, still $55 million short of what was owed.

Vornado contributed nothing.

A 20-year Toys "R" Us veteran named Giovanna De La Rosa testified before lawmakers: "Toys 'R' Us had a decades-long severance policy — a week of pay for every year of service to the company. But when our company liquidated, the employees were left with nothing. My coworkers and I were left with nothing while the executives and private equity owners walked away with millions."

What Came After

The brand didn't disappear entirely. In 2019, the intellectual property was transferred to a new company called Tru Kids, Inc. Pop-up stores opened. A partnership with Target was tried. A deal with Amazon — the company that had helped hollow out Toys "R" Us while it was drowning in debt — was announced.

In 2022, Tru Kids partnered with Macy's to open Toys "R" Us shop-in-shop locations at over 400 department stores. A standalone flagship opened at the American Dream mall in New Jersey. The Ferris wheel did not return.

These are not Toys "R" Us. They are a licensed approximation of its memory, deployed to trigger the nostalgia of people who remember what it used to be. The category killer is gone. What remains is a brand being rented to other retailers.

The Times Square store — the Ferris wheel, the T. rex, the Barbie Dreamhouse — closed in 2015, two years before the bankruptcy. The grandest version of what Toys "R" Us had been was already gone before the end came.

What It Actually Was

The easy read is that Toys "R" Us lost to Amazon and Walmart and changing shopping habits. That's not wrong, but it misses the mechanism.

The company was still generating $11.5 billion in revenue in 2017. The global toy market was not in decline. Babies "R" Us, its baby products division, was profitable. The stores were busy. Without the $400 million annual debt service, the company would have run a substantial profit.

It didn't fail. It was made to fail. The leveraged buyout structure made it mathematically impossible for the company to invest in the things it needed to survive, while guaranteeing that the people who had loaded it with debt would be paid regardless of what happened to the stores or the workers.

The backwards R, the jingle, Geoffrey the Giraffe, the Ferris wheel — all of it was mortgaged in 2005 and foreclosed in 2018. The children who grew up in those aisles didn't lose Toys "R" Us because they stopped going. They lost it because three firms decided a leveraged buyout was worth more than a toy store.

Case File Summary

Subject: Toys "R" Us Active: 1948 – June 2018
Founded by: Charles P. Lazarus — Washington, D.C., 1948 — source
Peak stores: 1,500+ worldwide — source
Peak market share: 25% of the global toy market — source
Acquired by: Bain Capital, KKR, and Vornado Realty Trust — leveraged buyout — 2005 — $6.6 billion — source
Debt loaded onto company: $5 billion — annual debt service $400 million — source
Bankruptcy filed: September 18, 2017 — source
Liquidation approved: March 15, 2018 — source
Jobs lost: 33,000+ U.S. employees — source
Severance owed vs. paid: $75 million owed — $0 paid at liquidation — $20 million fund created under pressure — source
Fees collected by PE firms: Bain and KKR each took at least $15 million — source
What survived: Tru Kids brand licensing; Toys "R" Us shop-in-shops at Macy's; Geoffrey the Giraffe — source
Status: Closed

Did you work at Toys "R" Us, or grow up in those aisles? The case file is open. Contact link is in the footer.

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