The trouble:
1. D--T! The company was over-leveraged, and because it was paying so much in debt service it could not upgrade its stores and displays.
2. 40% of all vendors were demanding cash on delivery. That's how things go with a fecal credit rating.
3. Hit at the start of the holiday-buying season (for retailers).
(from Zerohedge):
It might survive, most likely propped up by vendors who like a retailer that does not discount. But propping up a troubled client is an expensive proposition. But as the only seller charging full price for toys is turning a no-discount habit largely into a way of paying interest to creditors... I see a company on the brink of death. Life support, to be cut off when the moribund entity is no longer useful. Vendors will find alternatives. Sure, Toys 'R' Us sells toys at list price. But that is nothing if the benefit goes to a bunch of creditors.
It isn't pretty.
![[Image: 32.Bureaucracy-1024x651.png]](http://adizes.com/wp-content/uploads/32.Bureaucracy-1024x651.png)
http://adizes.com/bureaucracy/
1. D--T! The company was over-leveraged, and because it was paying so much in debt service it could not upgrade its stores and displays.
2. 40% of all vendors were demanding cash on delivery. That's how things go with a fecal credit rating.
3. Hit at the start of the holiday-buying season (for retailers).
(from Zerohedge):
Quote:Given that, it's somewhat ironic that Bloomberg notes this morning how important Toys "R" Us is to vendors and how Mattel and Hasbro couldn't possibly allow the company to liquidate.
Rest easy, kids. Toys “R” Us Inc. isn’t going anywhere, at least not if the makers of Barbie and Transformers have their way.
Yet, the company, which operates about 1,600 stores globally, will likely survive because manufacturers such as Mattel Inc., Hasbro Inc. and closely held MGA Entertainment Inc. need the last remaining toy chain. These vendors are eager for whatever remaining leverage they have against the might of Amazon and Wal-Mart, the bane of all companies focused on a single category of shopping.
“Oh my God, they are very important, and people don’t understand,” Isaac Larian, founder and chief executive officer of MGA, said of the toy chain. “That’s the only place where kids can go and just buy toys. There is no toy business without Toys ‘R’ Us.”
In many respects, suppliers have been propping up Toys “R” Us for years, according to Moody’s Corp. analyst Charlie O’Shea; they give the chain exclusive products during the holidays and funds for promotions to help it compete with the general merchandisers. The manufacturers offer this support because they want a place to sell toys at full price, year round. Major brands have also been funding an overhaul of Toys “R” Us stores by adding more featured areas for top brands such as Mattel’s American Girl dolls.
In the toy business, the incentive is particularly powerful. Last year, Toys “R” Us accounted for 11 percent of sales at Mattel and 9 percent at Hasbro -- the second most at both companies after Wal-Mart.
Meanwhile, many have speculated this week over how/why TOY bonds traded off 75 points on the company's filing? How could they be so wrong? While the timing of the filing was probably somewhat of a surprise, we can't help but wonder whether this simplistic org structure might have contributed in some small way?
It might survive, most likely propped up by vendors who like a retailer that does not discount. But propping up a troubled client is an expensive proposition. But as the only seller charging full price for toys is turning a no-discount habit largely into a way of paying interest to creditors... I see a company on the brink of death. Life support, to be cut off when the moribund entity is no longer useful. Vendors will find alternatives. Sure, Toys 'R' Us sells toys at list price. But that is nothing if the benefit goes to a bunch of creditors.
It isn't pretty.
Quote:Although it should be dead, the company in Bureaucracy is kept alive by artificial life support. The company was born the first time in Infancy, it was reborn in Adolescence, and its third "birth" is in Bureaucracy when it gets an artificial continuance on its life. Death occurs when no one remains committed to keeping the organization alive. If there is no business or government commitment to supporting a company in Recrimination, death can occur instead of bureaucratization.
In the Bureaucratic stage, a company is largely incapable of generating sufficient resources to sustain itself. It justifies its existence by the simple fact that the organization serves a purpose that is of interest to another political and business entity willing to support it. The Bureaucratic organization:
- Has many systems and rules and runs on ritual, not reason.
- Has leaders who feel little sense of control.
- Is internally disassociated.
- Creates obstacles to reduce disruptions from its external environment.
- Forces its customers to develop elaborate approaches to bypass roadblocks.
http://adizes.com/bureaucracy/
The ideal subject of totalitarian rule is not the convinced Nazi or the dedicated Communist but instead the people for whom the distinction between fact and fiction, true and false, no longer exists -- Hannah Arendt.