How vulture capitalists ate Toys 'R' Us • Hacker News Board

Re: How vulture capitalists ate Toys 'R' Us

#31

Post by spamizbad » Mon, Apr 23, 2018, 5:01 PM UTC

ghaff wrote: post #3

>In other words, if Bain, KKR, and Vornado had never come along, Toys 'R' Us wouldn't be doing stellar, but it probably could've muddled through. Maybe. It was already on a downward spiral. There's pretty much zero evidence that, left as a public company, they'd have figured out a way to reboot. It's not like there aren't plenty of other retail chains in dire straits.

In 2003, in the pit of a recession, Toys 'R' Us was still profitable. It got caught flat-footed by the proliferation of Walmart/Target and online sales at the same time.

Bain and KKR's turn-round strategy was largely a joke: They basically floated a bunch of trial balloons to the press, arguing that they weren't going to just be a toy store anymore (basically become a walmart or target) but that was scuttled. After that, they just decided to control costs as tightly as possible. Very little innovation.

Prior to the buyout, there was a team inside Toys 'R' Us that was trying to clone Amazon's e-commerce success. It died with the buyout. Bain and KKR thought they had a better plan: they didn't.

Re: How vulture capitalists ate Toys 'R' Us

#32

Post by jerf » Mon, Apr 23, 2018, 5:05 PM UTC

dmix wrote: post #13

Retric wrote: post #7

Earlier quoted context omitted.

A slowly dying company is still successfully serving some customers and employing people. So, early failure really is worse for both society and the companies workers. Further, leveraged buyouts are funded with loans, those lending money also lose out.

> Further, leveraged buyouts are funded with loans, those lending money also lose out. One of the reasons why they get loans so easily is because these are asset-heavy investments minimizing the downside risk for the banks. As there are usually plenty of real estate and inventory to get at least some of the money back during bankruptcy. Which is why we see it so often in the big-box retail space. There are plenty of…

Yeah, there's a lot of availability heuristic, where you can easily see and recall the multi-billion dollar behemoth that exists today, but you can't see what it is preventing from existing by the resources it consumes. Just because Toys R Us was big and maybe you have some fond memories of it doesn't mean that it needs to exist. You can also see and easily bring to mind the acute pain of Toys R Us collapsing but tend to discount the ongoing low-level pain of slow death and stagnation.

Re: How vulture capitalists ate Toys 'R' Us

#33

Post by lmm » Mon, Apr 23, 2018, 5:09 PM UTC

Retric wrote: post #7

JumpCrisscross wrote: post #2

> if Bain, KKR, and Vornado had never come along, Toys 'R' Us wouldn't be doing stellar, but it probably could've muddled through I'm rarely a defender of leveraged buy-outs, but in this case, I think it was a good thing. Private investors took a moribund business and attempted a turnaround. If they succeeded, everybody would have won. If they failed, a long and tortured slide into irrelevance got aborted and cut sho…

A slowly dying company is still successfully serving some customers and employing people. So, early failure really is worse for both society and the companies workers. Further, leveraged buyouts are funded with loans, those lending money also lose out.

> A slowly dying company is still successfully serving some customers and employing people.

An unprofitable company is an overall loss by definition - sure it's providing some value to some people, but it's consuming more value than it produces.

Killing the company quickly frees up the things it was consuming to be used for more productive things. Those buildings can be used for better businesses, or replaced with housing or parks or what-have-you. Other companies can offer better jobs to those workers (we're at close to full employment at the moment, and declining companies are not fun or fulfilling places to work). Money that was invested in that company can be put to more productive work in other businesses.

Re: How vulture capitalists ate Toys 'R' Us

#34

Post by Spooky23 » Mon, Apr 23, 2018, 5:16 PM UTC

spamizbad wrote: post #31

ghaff wrote: post #3

>In other words, if Bain, KKR, and Vornado had never come along, Toys 'R' Us wouldn't be doing stellar, but it probably could've muddled through. Maybe. It was already on a downward spiral. There's pretty much zero evidence that, left as a public company, they'd have figured out a way to reboot. It's not like there aren't plenty of other retail chains in dire straits.

In 2003, in the pit of a recession, Toys 'R' Us was still profitable. It got caught flat-footed by the proliferation of Walmart/Target and online sales at the same time. Bain and KKR's turn-round strategy was largely a joke: They basically floated a bunch of trial balloons to the press, arguing that they weren't going to just be a toy store anymore (basically become a walmart or target) but that was scuttled. After t…

The "turn around strategy" was do make the minimum viable noise that a turn around was in progress to avoid legal issues, borrow a metric ass-ton based on the assets that the company had, collect fees, etc.

Everyone wins except for whomever was stuck holding the bag on the debt.

Re: How vulture capitalists ate Toys 'R' Us

#35

Post by chongli » Mon, Apr 23, 2018, 5:20 PM UTC

jerf wrote: post #25

kelleoeo wrote: post #16

Earlier quoted context omitted.

Rich people losing a fraction of their wealth and who will rebound thanks to business networking effects, and be given a pass because sometimes that’s how it goes Limited downside seems accurate

OK, what are you looking for? Rich people get one shot at doing something, and if they fail, the government comes riding in and takes all their stuff? You have to be careful when you get vindictive at rich people; they're also the employers, and it's hard to build a system where such people aren't "the rich". (If you hard-core leveled everyone in the world to equal wealth, nobody would be able to employ anybody else…

OK, what are you looking for? Rich people get one shot at doing something, and if they fail, the government comes riding in and takes all their stuff?

I can't speak for the person you replied to, but how about this? Less downside for the workers. We're talking about thousands of people losing their jobs. These people then go into a smaller labour market where they compete with other vulnerable retail workers, affecting far more people.

If we want an appropriate measure of downside in a situation like this, we should look at all of the externalities. Few people ever do, though, and society marches on.

Re: How vulture capitalists ate Toys 'R' Us

#36

Post by JumpCrisscross » Mon, Apr 23, 2018, 5:21 PM UTC

spamizbad wrote: post #31

ghaff wrote: post #3

>In other words, if Bain, KKR, and Vornado had never come along, Toys 'R' Us wouldn't be doing stellar, but it probably could've muddled through. Maybe. It was already on a downward spiral. There's pretty much zero evidence that, left as a public company, they'd have figured out a way to reboot. It's not like there aren't plenty of other retail chains in dire straits.

In 2003, in the pit of a recession, Toys 'R' Us was still profitable. It got caught flat-footed by the proliferation of Walmart/Target and online sales at the same time. Bain and KKR's turn-round strategy was largely a joke: They basically floated a bunch of trial balloons to the press, arguing that they weren't going to just be a toy store anymore (basically become a walmart or target) but that was scuttled. After t…

> there was a team inside Toys 'R' Us that was trying to clone Amazon's e-commerce success

If we flipped roles, with the team inside Toys 'R' Us trying to control costs before the PE firms came in and tried to make Amazon competitor, it would sound equally damning.

Re: How vulture capitalists ate Toys 'R' Us

#37

Post by peacetreefrog » Mon, Apr 23, 2018, 5:22 PM UTC

Retric wrote: post #7

JumpCrisscross wrote: post #2

> if Bain, KKR, and Vornado had never come along, Toys 'R' Us wouldn't be doing stellar, but it probably could've muddled through I'm rarely a defender of leveraged buy-outs, but in this case, I think it was a good thing. Private investors took a moribund business and attempted a turnaround. If they succeeded, everybody would have won. If they failed, a long and tortured slide into irrelevance got aborted and cut sho…

A slowly dying company is still successfully serving some customers and employing people. So, early failure really is worse for both society and the companies workers. Further, leveraged buyouts are funded with loans, those lending money also lose out.

So, you (and the author of this article) are complaining both about the people lending money losing out, and also complaining that Bain et al spent too much money paying the loans back?

Re: How vulture capitalists ate Toys 'R' Us

#38

Post by harryh » Mon, Apr 23, 2018, 5:24 PM UTC

chongli wrote: post #35

jerf wrote: post #25

Earlier quoted context omitted.

OK, what are you looking for? Rich people get one shot at doing something, and if they fail, the government comes riding in and takes all their stuff? You have to be careful when you get vindictive at rich people; they're also the employers, and it's hard to build a system where such people aren't "the rich". (If you hard-core leveled everyone in the world to equal wealth, nobody would be able to employ anybody else…

OK, what are you looking for? Rich people get one shot at doing something, and if they fail, the government comes riding in and takes all their stuff? I can't speak for the person you replied to, but how about this? Less downside for the workers. We're talking about thousands of people losing their jobs. These people then go into a smaller labour market where they compete with other vulnerable retail workers, affecti…

Poorly performing companies going out of business in order for new, better companies to flourish is a necessary step for the creation of a healthy job market.

Re: How vulture capitalists ate Toys 'R' Us

#39

Post by Spooky23 » Mon, Apr 23, 2018, 5:24 PM UTC

lmm wrote: post #33

Retric wrote: post #7

Earlier quoted context omitted.

A slowly dying company is still successfully serving some customers and employing people. So, early failure really is worse for both society and the companies workers. Further, leveraged buyouts are funded with loans, those lending money also lose out.

> A slowly dying company is still successfully serving some customers and employing people. An unprofitable company is an overall loss by definition - sure it's providing some value to some people, but it's consuming more value than it produces. Killing the company quickly frees up the things it was consuming to be used for more productive things. Those buildings can be used for better businesses, or replaced with ho…

This particular company was strategic as it served as a competitive counterbalance to discounters and online stores.

The impact of the death of ToysRUs will be significant to the toy industry as a whole, as Walmart/Target only devote a couple of hundred linear feet to toys, and Amazon has killed the little shops that powered the long tail.

Re: How vulture capitalists ate Toys 'R' Us

#40

Post by whack » Mon, Apr 23, 2018, 5:25 PM UTC

The article, beginning with the title, makes it seem as if "vulture capitalists" were benefiting by feasting on Toys R Us. In reality, they lost a big pile of money by buying a company for $1.3B, which eventually became ~worthless via bankruptcy. They made a bet which failed, and paid the price for it, so I don't see any purpose in kicking them while they're down. I'm not sure how much money the creditors lost, but they knew exactly what they were getting themselves into, so it's hard to have much sympathy for them.

Presumably, these "vulture capitalists" could only afford to make such a bet, because they had historically succeeded more often than they failed. If you're going to deride Bain/KKR as being bad for the economy, because of this failure, you should also have the intellectual consistency to compliment them for their successes in previous leveraged buyouts.