Toys R Us Asia broke from its bankrupt US parent and doubled down on growth
Note holders took 79% of the Asian business, Fung Retailing kept the rest, and the operator locked the brand licence for 20+ years while ramping stores and IT.
What was changed
In November 2018, a week after separating from its former US parent, Toys R Us Asia's leadership held a press conference to say it would be business as usual — and then some. The regional operator, once a joint venture between the Fung Group's private Fung Retailing arm and Toys R Us Inc, announced it would ramp up investment in IT systems, e-commerce and bricks-and-mortar outlets, including eight stores in Singapore and the December reopening of its renovated Great World City and City Square Mall branches.
Under the deal, note holders of the bankrupt American parent — mostly US-based investment funds and financial institutions — took a collective 79% interest in the Asian business, with Fung Retailing holding the balance, and the regional group paid for the brand licence for at least 20 years. CEO Andre Javes said the new shareholders were focused on one thing: the development and growth of Toys R Us Asia in its own countries.
The venture had fared better than its US parent by design. Stores sit inside shopping centres rather than standalone sites, keeping marketing and operating costs down; sales are distributed across the year by festivities like China's Golden Week rather than concentrated in a make-or-break Christmas quarter; and stores average about 10,000 square feet, less than a quarter of their American counterparts. The group had more than 500 stores across the region, including 166 in China, and management said growth had been 'exponential' over the past five years.
Why it worked
The US parent's Chapter 11 filing was spilling negative effects onto the Asian business, so a clean ownership separation removed the taint.
Note holders converting debt into 79% of a growing Asian business salvaged value that the US collapse was destroying.
Mall-based, smaller stores spread sales across the year, avoiding the Christmas-or-bust economics that felled the American chain.
Committing to a 20-year licence and new store and IT investment signalled the region would compound independently.
What can be applied
A local operator can outlive a bankrupt parent when its model differs where it matters: malls instead of standalone stores, sales spread across the year, investment sustained.
Aftermath
The group continued refurbishing stores, testing a new Babies R Us format for Singapore, and hunting new sites, with e-commerce revenue growth outpacing offline. Management declined to disclose group financials beyond the Singapore records.