According to a report published by leading UK toy trade title, ToyWorld, the UK subsidiary of Toys R Us (TRU) will close 26 of its 106 UK stores, with job losses expect to number in the hundreds.

The closures will form part of a deal – which must be agreed to by 75 per cent of its creditors – that seeks to renegotiate debts owed by the company to its landlords. The UK entity is seeking approval from its board and US parent company to enter talks with the landlords.

The UK TRU board is proposing to initiate a company voluntary arrangement (CVA), which is a mechanism that enables companies to organise their funding and operations while enjoying protection from their creditors. Christmas trading and gift cards is not expected to be affected.

The UK subsidiary has been in financial difficulty for some time (the restructuring consultants were appointed in July) the CVA will allow the retailer to transform itself so it has a business model that reflects the changing demands of shoppers and move away from its 'big-box' out-of-town store model.

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.

The creditors will vote on the proposal on 21 December, before the CVA can progress to the next level. 

Store 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 among its 3000-strong workforce. 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 TRU, 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, TRU UK managing director has 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.

“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,” Knights said. “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.”

Specialist restructuring firm Alvarez and Marsal is understood to be drafting the CVA. In its analysis of the reporting to date, ToyWorld editors have speculated that the CVA likely to be approved considering that 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.

The stores signposted for closure include:

  • Aberdeen
  • Basingstoke
  • Belfast Newtonabbey
  • Birmingham St Andrews
  • Bolton
  • Bradford
  • Brislington
  • Cambridge
  • Cardiff
  • Derry City
  • Doncaster
  • East Kilbride
  • Exeter
  • Hayes
  • Kirkcaldy
  • Leicester
  • Livingston
  • Old Kent Road
  • Plymouth
  • Scunthorpe
  • Shrewsbury
  • Tamworth
  • Tunbridge Wells
  • Watford
  • York
  • Manchester Central Retail Park (earmarked for closure prior to CVA decision)
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