Toys R Us filed for bankruptcy in late 2017, stoking concerns about its future going forward before closing in the summer of 2018. The venerable retailer outlasted a large number of competitors. Here’s a look back at toy stores that went out of business.
Kay Bee, also known as KB Toys and KB Toy and Hobby, was the king of mall toy stores for decades. In 2000, it underwent a leveraged buyout by Bain Capital that left it saddled with debt. It went out of business in 2009, and Bain Capital’s role in its demise became a controversy affecting Mitt Romey’s 2012 presidential campaign. I have a more complete account of Kay Bee’s downfall here.
It is one of perhaps three examples on this list of toy stores that went out of business unnecessarily, due to mismanagement by its parent company.
After Toys R Us announced its intention to close in 2018, the KB brand name changed hands and its new owners announced plans to resurrect the brand as a seasonal popup store, and then to consider permanent retail locations depending on the outcome.
Toys R Us
Sadly, as of June 2018, we can add Toys R Us to this list. Like KB Toys, it underwent a leveraged buyout in 2005 to take the company private. Like KB, Bain Capital was involved. And the company never recovered from the debt. In 2017, it still had $5 billion in liabilities. The leveraged buyout, which was designed to allow a fading chain the flexibility it needed to update its business model without having to worry about quarterly returns, ended up slowly killing the company.
The strategy didn’t have to fail. Dell Corporation, the computer maker, took itself private in 2013 for exactly the same reason. Within three years, it was making a $67 billion acquisition and in 2018 it made itself a public company again.
But Toys R Us made few significant changes as a private company. The organization and layout was chaotic, the prices were higher than discount stores, the customer service was poor, and it didn’t provide a destination-type experience that classic toy stores of the past had.
Toys R Us didn’t necessarily have to become one of many toy stores that went out of business, but since Bain Capital and its partners stood to make money regardless of Toys R Us’ ultimate fate, it lacked the motivation that other companies that used the strategy successfully, such as Dell, had.
Radio Shack wasn’t strictly a toy store, but it sold lots of electronic toys in the 1980s and electric toys like Marx trains in the 1960s and 1970s. In rural areas, it was one of the most interesting stores in town for a kid.
Technically, Radio Shack didn’t go completely out of business, as there are a few hundred franchise stores remaining, but the parent company went bankrupt in 2015 and again in 2017, which resulted in closing almost all of its company-owned stores. Technically Radio Shack isn’t quite completely out of business, but it’s a far cry from its heyday when the overwhelming majority of the U.S. population, even in rural areas, lived no more than 10 minutes from a Radio Shack.
The reason for Radio Shack’s decline is complex, but many people blame the smartphone. A smartphone is able to replace almost every profitable device Radio Shack sold. And arguably the toys that Radio Shack carried in the 1990s and later weren’t as interesting to kids, but it would have taken more than a good toy line to save Radio Shack.
Lionel Kiddie City / Lionel Playworld
After Lionel Corporation sold its train business to General Mills in 1969, it became a holding company that owned and operated Lionel Kiddie City and Lionel Playworld. These were big-box toy stores similar in concept to Toys R Us. In the early 1990s, the operation ran into financial difficulty and considered merging with Children’s Palace. The deal didn’t go through and the two chains, along with its legendary parent company, went under in 1993. The train business survives as part of Guggenheim Partners, a private venture capital firm.
Children’s Palace / Child World
Children’s Palace and Child World were a big box chain store, similar to Toys R Us in size, format, and selection. The store exteriors resembled a castle, with turrets and arches. At its peak, it operated 182 stores and had an annual revenue of $830 million. Children’s Palace was founded in 1967. Child World was founded in 1970 and acquired Children’s Palace from its owner, Kobacker Stores, in 1975. Cole National acquired the chain in 1981 and continued to operate it as a subsidiary.
Child World utilized a supermarket-style format and was popular, especially in the midwest. It ran into financial difficulty in 1990, as its parent company, Cole National, restricted its cashflow. This resulted in financial disputes with a number of toy manufacturers. This combined with the recession later in 1990 and a slow 1990 Christmas retail season to give the company a shortfall of more than $190 million at the end of the fiscal year.
Turnaround efforts in 1991 failed, as did a buyout offer from an unnamed suiter. Child World filed for Chapter 11 bankruptcy in April 1992 and attempted to merge with Lionel that summer. A July 12 deadline for merging came and went, and the two companies continued talks until August 2, when they abandoned the plan. The final remaining stores went into liquidation and were out of business by the end of September, 1992, ending a quarter-century run.
It is possible that if Cole National had helped the chain avoid payment disputes with key toy manufacturers, Children’s Palace and Child World wouldn’t have had to join the ranks of toy stores that went out of business.
All Wound Up
All Wound Up was a mall-based toy store from 1994 to 2001. Its parent company also owned the Borders and Waldenbooks book chains. Frequently these were popup stores.
FAO Schwarz was founded in 1862 and was once the oldest toy store in the United States. The flagship store on Fifth Avenue in New York City was featured in a scene in the Tom Hanks movie Big. FAO Schwarz changed hands several times starting in the 1960s. In the 1990s, its then-owner opened about 40 stores nationwide. In 2001, the chain changed hands and 18 of the stores closed. A series of bankruptcies followed, culminating in more closures. Eventually in 2009, Toys R Us ended up owning what was left.
The Las Vegas store closed in 2010 and the flagship New York City store closed in 2015. It survived as a boutique sub-store in some Toys R Us locations for a few years. Toys R Us sold the brand name in 2016, and in late 2017, its new owner announced plans to open a 19,000-sqft location in New York in the fall of 2018. So this iconic store may emerge from the list of toy stores that went out of business.
Warner Bros Studio Store
The Warner Bros Studio Store was a chain of stores selling Warner Bros.-themed merchandise from 1991 to 2001, similar in concept to Disney stores. The chain survived a few more years overseas but the chain is now defunct.
Zany Brainy was once a high-flying chain specializing in educational toys, with 187 stores. It closed in 2003.
Noodle Kidoodle was another chain that specialized in educational toys. Zany Brainy acquired it in 2000, three years before going under itself.