Hacker News Board Hacker News, browsed like a classic message board
Live data from Hacker News

Amazon Has Considered Buying Some Toys ‘R’ Us Stores

bloomberg.com

Post reply on HN
Print view View original

81–90 of 110 posts

Re: Amazon Has Considered Buying Some Toys ‘R’ Us Stores

#81

Post by ggg9990 »

rubicon33 wrote: post #72
MadBohr wrote: post #17

Earlier quoted context omitted.

It's important to note that a lot of the failure of Toys R Us has to do with private equity buyout rather than a poor business model. Of course, their business model was flawed, but remember that Toys R Us was bought in 2005, and the toy market was MUCH simpler back then. Amazon was hardly the player it is now. The private equity firm then loaded them up with crippling debt. Move forward a few years, and enter Amazon…

Can you or someone else explain to me why a firm would buy a company, and then "load them with debt"? Was the debt intended to help them grow?

No, the debt is intended to give them leverage. Have $300 million but want to get the returns of having a $3 billion company? Use debt to make up the difference, make $600 million if the value goes up 20%, and leave some pension fund dumbasses holding the bag if the price goes down 20%.

Re: Amazon Has Considered Buying Some Toys ‘R’ Us Stores

#82

Post by acomjean »

rubicon33 wrote: post #72
MadBohr wrote: post #17

Earlier quoted context omitted.

It's important to note that a lot of the failure of Toys R Us has to do with private equity buyout rather than a poor business model. Of course, their business model was flawed, but remember that Toys R Us was bought in 2005, and the toy market was MUCH simpler back then. Amazon was hardly the player it is now. The private equity firm then loaded them up with crippling debt. Move forward a few years, and enter Amazon…

Can you or someone else explain to me why a firm would buy a company, and then "load them with debt"? Was the debt intended to help them grow?

The question I have is who loans a company like that money?

Re: Amazon Has Considered Buying Some Toys ‘R’ Us Stores

#83

Post by jjeaff »

stupandaus wrote: post #55
jobu wrote: post #27

Earlier quoted context omitted.

> I personally believe Toys R Us just missed an opportunity to run a proper business. Toys R Us has been struggling to pay off $6 billion in debt from the Bain Capital takeover in 2005. They didn't have the capital or the margins to invest in maintaining their stores, let alone competing with Amazon. Buying a company with debt and then forcing that company to pay off that debt is fairly common, but for some reason it…

To answer your question, the debt holders take precedence over the equity holders like Bain Capital, and generally being an equity holder and having your equity stake wiped to $0 is not a good outcome for a private equity firm. Bain does have to pay off debts - that is what the liquidation of assets is being done for - to pay off debts to the debt holders. Bain doesn't get to keep those assets.

Except, I think the rub here is that Bain will have paid itself enormous consulting fees from toys r us coffers.

My guess is that they come out ahead even after the bankruptcy. They would have put some of their own money in to purchase equity but my guess is, not more than fees would amount to after a decade.

Re: Amazon Has Considered Buying Some Toys ‘R’ Us Stores

#84

Post by sky_rw »

scarface74 wrote: post #66
MadBohr wrote: post #37

Earlier quoted context omitted.

Unfortunately that's the nature of business. Sometimes it's impossible to predict market situations 10, 15 years out. I doubt anybody at Bain could have predicted in 2005 that Amazon would completely dominate the retail market in 10 years. Also, some responsibility falls on the debtors themselves for taking on potentially risky investments, but there are so many loopholes and gotchas here that I really can't comment…

How could Bain not predict that Amazon would dominate toy sells? Toys R Us made a 10 year deal with Amazon to be the exclusuve toy seller in 1999, that had already fallen apart by 2005. Amazon was already the top online toy reteller by then. As far as debtors being "screwed", hopefully they are both diversified enough and demanded enough of a risk premium for them to at least break even on their entire portfolio of l…

"Fallen apart" is a nice way to put it. Another way to put it is that Amazon duped Toy's R Us into a terrible deal, learned everything they could about the toy market, then dumped them and violated their contract knowing that regardless of proceeding lawsuits (which Toys won) they would dominate the online toy space in the future. Everybody here blaming Bain, when the reality is that Toy R Us got thoroughly outplayed in the online space and never learned their lesson.

Re: Amazon Has Considered Buying Some Toys ‘R’ Us Stores

#85

Post by sky_rw »

acomjean wrote: post #82
rubicon33 wrote: post #72

Earlier quoted context omitted.

Can you or someone else explain to me why a firm would buy a company, and then "load them with debt"? Was the debt intended to help them grow?

The question I have is who loans a company like that money?

Your parent's pension fund most likely.

Re: Amazon Has Considered Buying Some Toys ‘R’ Us Stores

#86

Post by spike021 »

vinhboy wrote: post #11

I think Amazon should do it. I personally believe Toys R Us just missed an opportunity to run a proper business. They have a ton of retail space, but every time I've been there, it's run like Walmart. Shit everywhere, no one to help you find anything, etc... There's nothing suburban parents like me want more than an indoor play space for my kid (for extremely hot or cold days). If they properly utilized their store a…

This sounds like a nightmare, though. Obviously people go to mall play areas and whatnot already for the scenarios you mentioned, but the germs and everything to deal with would be even worse for this IMO.

Re: Amazon Has Considered Buying Some Toys ‘R’ Us Stores

#87

Post by scarface74 »

sky_rw wrote: post #84
scarface74 wrote: post #66

Earlier quoted context omitted.

How could Bain not predict that Amazon would dominate toy sells? Toys R Us made a 10 year deal with Amazon to be the exclusuve toy seller in 1999, that had already fallen apart by 2005. Amazon was already the top online toy reteller by then. As far as debtors being "screwed", hopefully they are both diversified enough and demanded enough of a risk premium for them to at least break even on their entire portfolio of l…

"Fallen apart" is a nice way to put it. Another way to put it is that Amazon duped Toy's R Us into a terrible deal, learned everything they could about the toy market, then dumped them and violated their contract knowing that regardless of proceeding lawsuits (which Toys won) they would dominate the online toy space in the future. Everybody here blaming Bain, when the reality is that Toy R Us got thoroughly outplayed…

These were supposedly smart business people. You are always in danger when you outsource something that should be your core competency.

Apple learned that lesson a decade ago. If you look at the post Steve Jobs Apple, they brought more in house - retail, chip design, software, and rumors are they are trying to bring screen design more in house. Anything else, they try desperately not to depend on one supplier - commoditizing their compliments. (https://www.joelonsoftware.com/2002/06/12/strategy-letter-v/)

Re: Amazon Has Considered Buying Some Toys ‘R’ Us Stores

#88

Post by jstarfish »

ars wrote: post #71
ceejayoz wrote: post #29

Earlier quoted context omitted.

Cite for the above: https://www.bloomberg.com/news/articles/2018-03-16/who-kille... Buy company. Take out massive debts on company's books. Withdraw hundreds of millions in "fees". Let company collapse. Rinse, repeat.

Claire's and Sears were killed by the exact same thing.

Sears already had a mail-order business that sold literally everything from hand tools to houses. The venerable Sears Catalog was amazon.com in printed form.

A bust-out scheme is the least of their failings.

Re: Amazon Has Considered Buying Some Toys ‘R’ Us Stores

#89

Post by kirykl »

fullshark wrote: post #57
kirykl wrote: post #34

Earlier quoted context omitted.

That Target guy is Ron Johnson, the same one who built Apple retail and tried to help JC Penney

He almost destroyed JC Penney

JC Penney had failed before they brought him in. It's now just slowly dying. They've even had to sell off their HQ http://fortune.com/2017/01/03/jcpenney-headquarters-debt/

Re: Amazon Has Considered Buying Some Toys ‘R’ Us Stores

#90

Post by jstarfish »

ethbro wrote: post #62
kirykl wrote: post #34

Earlier quoted context omitted.

That Target guy is Ron Johnson, the same one who built Apple retail and tried to help JC Penney

I hadn't been in a Target in awhile, but popped in an intown location the other day. Wow. I was definitely impressed. For a chain that used to be "the other Walmart", the design and general feel of the store was miles different today. So hats off to Mr. Johnson, and Target for hiring him. Side note: Having a Starbucks in-store at Targets is brilliant. I imagine the deal works out financially for both parties, and Tar…

Target has been actively renovating their stores in the last few years to make them more like...Crate & Barrel I guess?

The ones that haven't gone through the transition yet still do have that 90s warehouse feel of a more expensive Wal-Mart.

Post reply on HN