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What Really Killed Toys ‘R’ Us Wasn’t Amazon or Walmart

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Brick and mortar stores are having a rough time in the era of online shopping. The biggest of the big-box stores, like Walmart, have a firm foothold in local markets, but even larger chain stores are having difficulty, as Toys R Us clearly demonstrates. Yet there is a new theory about what killed off the toy selling giant, and it isn’t online sales or competition.

Cory Doctorow, writing for BoingBoing, explains what’s actually happening. “Private equity’s favorite shell game is to take over profitable businesses, sell off their assets, con banks into loaning them hundreds of millions of dollars, cash out in the form of bonuses and dividends, then let the businesses fail and default on their debts,” he writes.

“The result is the retail apocalypse, where predatory giants like Walmart and Amazon are able to topple their vulture-capitalist-weakened prey, creating a feedback loop that enriches the shareholder class and destroys American businesses, leaving workers high and dry.”

The private equity owners of Toys R Us borrowed $5 billion to buy the company.  Their annual debt service plan totaled $400 million. Yet, as Doctorow points out, the new owners defaulted on their debt. But they paid themselves $200 million “including tens of millions in performance bonuses to the C-suite in the same year the company declared bankruptcy.”

Despite this massive amount of money moving around, Toy R Us has just announced that they will default on all severance packages. 30,000 employees are now left out in the cold.

Doctorow uses the example of “33-year employee Cheryl Claude of South River, New Jersey.”

“I spent every holiday, leaving my kids home for the holidays, Thanksgiving, Christmas, birthdays, everything to be at work and give my one-hundred percent to get nothing is incredible,” Claude says.

“We’re not receiving anything,” Shkeanah Best, another former employee says. “Just unemployment and I don’t want to go that route. You don’t know how long it’s going to last. Unemployment doesn’t pay anything. It’s crazy how a big franchise is closing its doors and not offering us anything.”

“In the case of Toys R Us, financial filings show that the company was handing over $400 million a year to pay back its debt, often at the expense of turning a profit,” The Tamp Bay Times writes. “Recently, it was burning through $50 million to $100 million in cash each month as it tried to dig its way out, according to court documents filed in March. The retailer also paid $470 million in advisory fees, interest and other payments to Bain Capital, KKR and Vornado since 2005. The firms did not respond to requests for comment.”

“Something is seriously wrong with this type of economy,” [Menendez] (D-N.J.) said about the news. “How many employees at Bain are now worrying about how they’ll pay for day care? How many employees over at KKR don’t have the cash to fill up their gas tank to go out looking for jobs?”