Another week, another seismic set of events to discuss. This time, the drama is a little closer to home. I had initially heard rumours last Thursday that TRU was potentially about to launch a CVA. As I was trying to obtain definitive corroboration, Sky Business News went public with the news that the UK toy community had been dreading.
So, what now? We know that a minimum of 26 stores will close. Indeed, redundancy notices have already been issued to staff in some stores, dated as early as March 1st. TRU is not hanging around. We also know now that 29 stores are classified as profitable, and should therefore survive unscathed. A further 21 pop-up stores are not affected by the CVA. Which leaves us with around 38 stores whose fate depends on negotiations with landlords, who are being asked to accept a maximum of 80p in the £ (and in some cases, much less) to settle the outstanding debt, as well being as asked to reduce rents, agree to downsize the stores, or in some cases, a combination of both measures. The alternative is grim; administration, and a settlement of 12.5p in the £. So, surely the approval of the CVA is a fait accompli?
Perhaps, but the final store estate picture may turn out to be a little more complicated. It is likely that some landlords will acquiesce, while others may not be so amenable. That may come down to what other options they have; if there are tenants keen to move in and pay a higher price – the names of Bunnings and B&M have cropped up frequently in conversation – they may feel that letting TRU go may be in their best interest long-term. A downsize can cost up to £1m, so it is not necessarily an attractive prospect, particularly if the store can command its current rent with new tenants. It has been suggested to me that some landlords may therefore use the 45-day notice option if they can secure a better deal. Bear in mind that some of these leases date back to the 1980s and 90s, and were signed on a 99-year basis- an awful lot has happened since then.
Meanwhile, suppliers are left waiting nervously. I do, however, have one piece of good news to share: it has been widely reported that landlords will have to accept a loss on their debts, and I have been inundated with suppliers asking if the same would apply to trade creditors. So, I posed the question to the company handling media relations for the restructuring company, and after an initial attempt at a political answer (“suppliers are not being compromised”), further probing elicited the following clarification: “I am confirming that all monies owed to suppliers will be paid in full. The only parties that are compromised as part of the CVA process are the landlords.” That, at least, will come as welcome relief to suppliers.
However, the situation is a long way from being over. TRU buyers are reportedly in limbo; they won’t know until the creditors meeting on 21st December whether they will be retained. There are rumours that the retailer may move to a smaller head office, as well as a smaller warehouse – or even go the third-party route. I am also hearing that TRUs problems are unsurprisingly spreading internationally, with banks becoming increasingly reluctant to support the chain. It was also interesting to see that the restructuring consultants were initially appointed by the US division of TRU back in July – so this has been coming for some time, yet this development clearly wasn’t shared outside the company at that stage (at least I guess not, judging by the size of some of the debts owed to toy companies). It has also emerged that the pension deficit is at least £17m, while TRU UK has paid over £670m to the US parent company in last 18 months. Oh, and the ridiculous bonuses requested by US management have been approved by the courts: there was an actual quote in the report from a Toys R Us lawyer that said – I am not making this up – “There is still time to motivate shoppers to buy as much as they can.” So, without these bonuses, is he suggesting that the motivation wouldn’t have been there? Unbelievable.
While TRU has inevitably dominated the news agenda this week (again), there is another important development to report. I can exclusively reveal that after what he describes as “20 fantastic years at the company,” Mattel UK’s country manager Dominic Geddes will be stepping down at the end of December, a decision he came to several months ago (and it was very much his decision). Talking to him yesterday, his fondness for the company and his team – who he said he had been proud to lead through some great times – remains undiminished, and the high esteem in which he is held in by all his colleagues will make him a hard act to follow. However, after 36 years in the toy industry, I suspect he will continue to be involved in the trade and we’ll keep you informed about his next move, as well as his successor at Mattel, as soon as there is further news.
Finally, I think we could all do with a bit of cheering up. So, I thought I’d share this product with you. I have no idea what it is, or who makes it. I genuinely don’t know if it is one of the worst products I have ever seen, or one of the best. After much debate at Toy World towers, we feel it may be a potato that has been bitten by a radioactive spider and is on its way to a fancy-dress event, wearing one of Donald Trump’s old wigs that has been back-combed. Or something like that. But it did make me smile. And after the events of the last week, that was no bad thing.