Toys “R” Us will still face a tough marketing challenge under new owners after the $6.6 billion deal closes.
The toy retailer announced last week that it will sell its worldwide operations (including the global Toys “R” Us and the Babies “R” Us businesses) to an investment group including Kohlberg Kravis Roberts & Co., Bain Capital Partners and Vornado Realty Trust.
The group will pay $6.6 billion for all outstanding shares of TRU and assume its debt, taking the publicly held company private. The deal is expected to close by July.
The chain had planned to spin off Babies “R” Us and sell the global toy business separately. It began a revamp in August to prep for the separation, liquidating inventory, readying a management succession plan for Babies “R” Us, and promoting John Barbour to president of the U.S. toy stores from president of Toys “R” Us International (Aug. 12, 2004 Xtra). Barbour is expected to remain after the sale, according to news reports.
But Wayne, NJ-based Toys “R” Us still faces tough competition as a whole entity, especially from Wal-Mart Stores and Target. Holiday 2004 sales were down 0.9% to $4.29 billion (for nine weeks ended Jan. 1, 2005) and same-store sales fell 3.7% in the U.S. (2.2% worldwide) for the time period.
Analysts predict the new owners could sell off 15% to 20% of the stores under the supervision of Vornado’s real estate specialists.
Toys “R” Us could invest more in marketing and operations as a private company that’s not pressured for quarterly returns. The chain spent $129.5 million on measured media in 2003, according to TNS Media Intelligence.
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