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Toys 'R' Us Files Bankruptcy: Retailers 'R' in Crisis

Even with the Christmas season coming, it must have been a 'Come-to-Jesus' meeting for Toys 'R' Us and its lawyers.

Kirkland and Ellis, a top ranked restructuring firm, was hired to look at options for the struggling retailer. Refinancing was on the Christmas list, but the attorneys had some bad news.

Bankruptcy was the only way out of billions of dollars in debt. The crisis was actually a long-time coming -- at least since the advent of internet companies like Amazon.

"Second-Rate Website"

With 1,600 stores worldwide, Toys 'R' Us used to be the biggest toy seller on the planet. Now that distinction belongs to Amazon.

Chronicling that history, the Washington Post put the blame on Toys 'R' Us: "Lousy in-store customer service, a second-rate website, and prices that are often higher than at many of its big-box competitors."

The company's $5 billion debt didn't help, either. Chief executive Dave Brandon said in Chapter 11 filings that the company has a plan to get out from under its leveraged buyout in 2005.

"Together with our investors, our objective is to work with our debtholders and other creditors to restructure the $5 billion of long-term debt on our balance sheet," he said.

Retail-Mageddon

The toy company's demise did not occur in a Christmas vacuum. It does its biggest business during the holiday season, which brought in $11.5 billion last year.

But the company had to go bankrupt just to make it to the New Year, when $400 million in loans become due. And then there is that retail-mageddon thing.

More than 300 retailers have filed for bankruptcy this year, including Gymboree, RadioShack, and Payless. Macy's, Sears, and Bebe have closed hundreds of stores.

At the same time, companies like Amazon have been growing. The e-tailer bought Whole Foods Market for $13.7 billion last month.

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