Many toymakers say they won’t let Toys ‘R’ Us die after filing for bankruptcy, noting that doing so would be bad for their own businesses. After all, the chain is typically their biggest client. However, it appears there’s more at stake, namely, the millions of dollars the manufacturers are owed.
Now, instead of relying on Toys ‘R’ Us to make sales and pad their bottom lines, many toymakers are bracing to take a hit as a result of the debt-strapped retailer’s bankruptcy.
The Washington Post reports that there is a “widespread panic” making its way through the toy companies that supply products to Toys ‘R’ Us, as many believe they won’t be able to recoup the millions of dollars they’re owed by the chain.
A Lot Of Debt
When Toys ‘R’ Us filed for bankruptcy [PDF] earlier this month, the company noted that it owed more than $7.5 million in debt to more than 100,000 creditors.
Many of those creditors happen to be toymakers, both large and small ventures.
For instance, the second largest creditor is Mattel, which is owed $136 million; Hasbro comes in next with $59 million; and Spin Master is owed $32 million.
But smaller toymakers are likely to feel the biggest pinch: Baby supplier Munchkin Inc is owed about $3.1 million, while Playmobile is owed $2.5 million.
Earlier this week, some small vendors cut ties with Toys ‘R’ Us citing concern that they would never be paid their debts.
Product Launchers — which connects small toymakers with retailers — said it had “taken down all connections” with the chain, noting that it would “rather focus on retailers that have strong financials.”
The company had recently delivered an order of $500,000 worth of fidget spinners with licensed DC Comics characters on them to the chains.
Product Launchers estimates that it’s owed around $1 million, which sounds like a lot of money to mere humans, but doesn’t even put it in the top five creditors of Toys ‘R’ Us.
“We’re bottom of the barrel when it comes to getting paid back,” Linda Parry Murphy, chief executive of Product Launchers, told The Post. “They’ll get to us last, even though we’re the ones who will get impacted the most.”
Preparing For A Hit
Jakks Pacific, a California-based toy supplier, is owed about $14 million from Toys ‘R’ Us. That debt will likely cause the company to post a loss for the year, executives warned last week.
The year “continues to present a challenging retail environment, which has now been further disrupted by the Toys ‘R’ Us Chapter 11 filing,” CEO Stephen Berman said in a statement.
However, unlike some of the smaller toymakers cutting ties, Jakks believes its relationship can be salvaged as Toys ‘R’ Us has recently received financing to pay some of its debts.
To that end Berman says he is “optimistic that we can resume our relationship with Toys ‘R’ Us as one of its significant suppliers.”
There’s (Some) Hope
With larger toymakers likely to be paid by Toys ‘R’ Us, bankruptcy experts tell The Post that there could be hope for the chain, yet.
As long as the company can continue to keep suppliers on board, shipping their products to stores, then the brand could continue. If suppliers don’t continue working with the company, the upcoming holiday season could be Toys ‘R’ Us’ last. That’s apparently something the chain is aware of.
One smaller toymaker, who asked not to be identified, told The Post that Toys ‘R’ Us has been insistent that products continue to ship despite the financial woes.
The executive says that “without product for the holidays, they don’t survive.” But the toymaker’s survival is also in question now.
“This has ruined our year,” the executive said. “Right now everybody is basically working out their own side deals, getting what they can. We’re not a Mattel, Hasbro or Spin Master. We’re not a multibillion-dollar company. We’re a small company that is going to end up getting pennies on the dollar.”