Last fall, international toy merchandising giant, Toys ‘R Us, filed for bankruptcy under Chapter 11 protection. The move was intended to give the struggling business “greater flexibility” in dealing with it’s $5 billion in long-term debt.
Then last month, the company announced the intention to close 184 stores, paring down its 700+ locations across the United States. This step was a further effort to clear the financially ailing retailer’s balance sheet in hopes of attracting a would-be investor to bail out the company.
Unfortunately, the bid failed. As a result, Toys ‘R Us has announced plans to close all US-based stores.
The company’s faltering sales are largely attributed to increased competition from eCommerce outlets, chiefly, Amazon. In addition to a strong push among discount retailers, such as Target and Walmart, to capture a larger portion of the toys sales market. An effort that has proven successful, much to the chagrin of Toys ‘R Us.
Toys ‘R Us has offered no immediate timeline for store closures. And no outline for where the process will begin or how it will progress regionally.
The silver lining…
In CoStar’s recent State of The Retail Market presentation, the firm’s economists noted the majority of Toys ‘R Us stores boasts a strong “location score.”
This is a proprietary scoring metric that factors income demographics, the financial health of adjacent retailers, and overall commercial property values to determine a location’s “investment quality.”
And according to CoStar’s data, Toys ‘R Us anchored or occupied shopping centers demonstrate consistently high investment quality.
This indicates that despite the fact that Toys ‘R Us happens to be vacating a center, the property is none-the-less an ideal site for replacement credit tenant.
In other words, a bevy of prime real estate ripe for willing takers is about to open up!
And this is good for…
Yes, many an aggrieved landlord is about to lose a major credit tenant currently occupying a LOT of space in their center. That said, however, there is a sizable pool of strong replacement tenants waiting in the wings.
The shortage of A+ space has been one of the biggest roadblocks to many expanding tenants. Meanwhile, the locations the majority of Toys ‘R Us stores currently occupy are exactly the type of sites most credit tenants salivate over. And more than a few of these locations are about to become available.
There many big deals looming on the horizon ; —)
Thus, despite Toys ‘R Us’ clear misfortune, the situation is by no means a net loss.