The Toys R Us CVA explained

Published on: December 5th, 2017

Toy World has picked through all the information from the past 24 hours of reporting to bring you the key facts and figures, including which stores will be closed. 

The CVA proposal was made available to creditors yesterday.

The creditors will vote on the proposal on 21st December. A vote of 75% is required for the CVA to progress to the next level.

According to Toys R Us, the CVA will allow the retailer to transform itself so it has a business model that reflects the changing demands of shoppers.

Toys R Us has been in financial difficulty for some time (the restructuring consultants were appointed in July) and the CVA process will enable the company to substantially reduce its obligations – particularly what it describes as its “onerous rent agreements” – and reposition the store portfolio for future growth and profitability.

Toys R Us has stressed that its UK stores will remain open through Christmas and well into the New Year, and that all customer returns, gift cards and loyalty programmes will be unaffected by the process.

However, a minimum of 26 UK stores will ultimately be closed, but it may end up being more. The closures are likely to take place in the late spring or early summer 2018. In addition, as a result of the CVA, other stores may be downsized or rents subjected to significant readjustments.

As part of the store closure programme, there will be redundancies. The company states that that all efforts will be made to redeploy team members where possible, but redundancies are likely to number between 500 and 800 people. In the meantime, assurances have been made that staff will continue to be paid as normal, and will continue to receive their in-work benefits.

According to Toys R Us, the CVA plan is an entirely separate process to the Chapter 11 proceedings in the US, and is not a consequence of the US operation’s ongoing difficulties. However, both the UK and US businesses acknowledge that they are facing “challenging conditions” in their domestic markets.

Steve Knights, managing director of Toys R Us UK, said the warehouse-style stores opened by the retailer in the 1980s and 1990s have proven “too big and expensive to run”, adding that “newer, smaller, more interactive stores in the right shopping locations” were trading well.

Steve commented: “Like many UK retailers in today’s market environment, we need to transform our business so that we have a platform that can better meet customers’ evolving needs. The decision to propose this CVA was a difficult one, but we determined it is the best path forward to make essential changes to the business.”

Is the CVA likely to be approved? Broadly speaking, landlords have been offered 80p in the £1 via the CVA proposal. The alternative to the CVA is potentially administration, which would see landlords receive approximately 12.5p in the £1. As a result, it is thought likely that the CVA will be approved.

The stores signposted for closure include:
Belfast Newtonabbey
Birmingham St Andrews
Derry City
East Kilbride
Old Kent Road
Tunbridge Wells
Manchester Central Retail Park (earmarked for closure prior to CVA decision)

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