Toys"R"Us Vendors Cut Shipments on Bankruptcy Fear

Some suppliers to Toys“R”Us have scaled back shipments to the retailer as it struggles to refinance debt and avoid a potential bankruptcy filing, according to people with knowledge of the matter. The vendors are balking as Toys“R”Us continues talks with lenders over a new loan that would allow the retailer to stay open while it works out a recovery plan through bankruptcy proceedings, said the people, who asked not to be identified because discussions are private. Suppliers pulled back in part because the cost to insure their shipments to cash-strapped Toys“R”Us has become too expensive, said the people. Vendors often rank among creditors with the lowest priority for getting repaid if a company seeks court protection, and their decision on whether to continue shipping goods can play a large role in determining a retailer’s fate.

Total Retail's Take: This couldn't be happening at a worse time for Toys"R"Us, as the toy company prepares for the holiday shopping season. Roughly 40 percent of the retailer's annual sales come during the fourth quarter. With less inventory on store shelves and in distribution centers, Toys"R"Us figures to see its holiday sales drop, further adding to the company's woes. Yet I can't blame product suppliers for being cautious with their shipments to Toys"R"Us, as there's no guarantee that they will be paid for their merchandise if the retailer files bankruptcy, which at this point appears imminent. It seems product suppliers have been burned one too many times from the many retail bankruptcies in 2017.