KB Toys files for Chapter 11 bankruptcy protection
 

KB Toys files for Chapter 11 bankruptcy protection for second time in 4 years


NEW YORK (AP) -- In another sign of the grim holiday season, KB Toys filed for bankruptcy protection for the second time in four years on Thursday and plans to begin going-out-of business sales at its stores immediately.

The 86-year-old company said in a filing that its debt is "directly attributable to a sudden and sharp decline in consumer sales" because of the poor economy.

That a toy retailer filed for bankruptcy just before Christmas shows how bleak things have become, since such stores make up to half of their sales during the holidays. But analysts expect toy sales this holiday season to be flat or down slightly from last year's total of $10.4 billion, according to market research firm NPD Group, because consumers are cutting back amid the recession.

In response, toy retailers, including KB Toys, amped up their discounts.

KB Toys had aggressively cut prices to entice cash-strapped shoppers, offering hundreds of toys for $10 or less. It also expanded its value program, which offers deals on new items each week, and offered "Buy 2, Get 1 Free" promotions.

But the deals weren't enough. In the filing in U.S. Bankruptcy Court in Delaware, KB Toys said that between Oct. 5 and Dec. 8 sales in stores open at least one year, a key retail metric known as same-store sales, fell nearly 20 percent.

The company said it considered its alternatives and decided the most viable way to cover its debt was to begin liquidating its stores via immediate going-out-of-business sales. KB Toys also plans to sell its wholesale distribution business, according to the filing.

Filing for Chapter 11 protection rather than Chapter 7 liquidation allows a company to retain more control over selling off assets. Under Chapter 7, the court immediately appoints a trustee to take over the case.

KB Toys declined to comment beyond what was in the filing.

The company operates 277 mall-based stores, 40 KB Toy Works stores which are mainly in strip malls, 114 outlet stores and 30 short-term holiday stores. It has 4,400 full-time employees and 6,515 seasonal employees.

KB Toys, which says it has about $480 million in annual sales, said in the filing that it had debts between $100 million and $500 million and total assets in the same range.

Vendors top the list of unsecured creditors. The toy retailer owes Hong Kong-based toy manufacturer Li & Fung about $27.2 million, El Segundo, Calif.-based Mattel Toys $1.3 million and St. Louis-based Energizer Battery more than $728,000. Other creditors are Hasbro Inc. and the maker of Legos.

Pittsfield, Mass.-based KB Toys filed for bankruptcy in 2004 and emerged nearly two years later as a subsidiary of investment firm Prentice Capital Management, which owns 90 percent of the company's common stock. During that bankruptcy, KB sold its retail Internet operation to eToys Direct Inc., cut the number of retail stores from 1,200 to 650 and closed a distribution center.

Jim Silver, a toy analyst at timetoplaymag.com, said KB had been struggling since emerging from its first bankruptcy protection in 2005.

"Manufacturers were concerned about shipping to them over the last couple of months," he said. "This did not happen all of a sudden."

He said that the timing of the filing was a surprise, however, since he expected it in January. But as manufacturers balked at shipping "hot" holiday toys, their sales dropped off. KB Toys also suffered from deciding not to sell video-game consoles such as the Nintendo Wii, one of the few toy items selling well this year, Silver said.

"Their business model didn't work," he said. "They're selling closeouts, today people want the hot toys."

Amid the consumer spending slowdown and recession, KB Toys joins a growing list of retailers filing for bankruptcy protection. Others include Mervyns LLC, The Sharper Image, Steve & Barry's, to Linens 'N Things and Circuit City Stores Inc.

Retailer KB Toys files for bankruptcy protection: Financial News - Yahoo! Finance

it's a shame.

It's always a shame to see a retailer go. On my first visit to the US I spent a fair bit of money in KB.

It's worse still knowing someone who works there and is going to lose their job over it. And in the holiday season too, when money is already tight.

I feel for all those people who've worked hard to turn the situation back and have lost their jobs now.

This article was right, KB Toys did suffer because of product choices. Although they did have recent items, they were the last to get the "hot and new" items, or just never ordered them in the first place.

I don't have a KB in Rockford, so the last time I went there was a year ago about 30 minutes away. $25 for Voyager Class Transformers, $15 for Deluxe Class Transformers. It's just if you can get them cheaper elsewhere, like Target, which has better selection anyways, why not go there?

I am truly sorry about those employees who work there like Sol Fury has said. It is not their fault, but now, people who want hot items or want to save money just do not want to go to stores like KB anymore, and I feel anger against the CEOs of KB who didn't anticipate this and now have their 84-year-old business closing and their employees out of work.

However, I don't know if it is right to blame them either, it's just a chain reaction with this economic recession, and it may have been just entirely out of their control.

I think it was last year my KB closed here in Aurora. This year they opened a store just for the Xmas shopping season.
I hope Toys R Us isn't next. :(

While I am saddened by this because I know someone from TFW who is losing his job, and it is not fair.

I am not surprised actually, and, as others have said, KB never had anything good, ever. and way to much overpriced lame crap nobody wanted. And now this happens, right in time for the holidays and folks are getting canned.

Besides the Micromaster combiners, I never shop there

Poor business practice is what it boils down to.

Everyone is feeling the pinch, I don't blame them for not shopping KB

may go in there and see if any decent joes go on clearance, they are usually 6 months behind normal saturation, anyway.

It isn't really surprising that they're filing again. They simply just can't compete with Target and Walmart. Those stores have the latest items and are the cheapest. In this economic decline we are in, why shop at a store that has older stock and is a few bucks more.

Though I will say this, KB did bring me a lot of good memories buying the Spiderman Animated line, when every other store stopped selling them many months previous. It was great to go to KB and see Rhino, Venom, Doc Ock, all for 4 and change.

I also bought an Imperial Shuttle from KB online, when they bought out FAO Schwartz's stock. $50 for a shuttle is an incredible deal. So for that KB, I salute you.

I can't help but wonder why KB didn't take more drastic steps to avoid this situation back during the first time they filed bankruptcy. That was four years ago before the "recession". As others have already said, KB's pricing and stock were no match for other retails (both local and online). So one would think that there would be a call to change the business plan in order to stay competitive.

I rarely shopped there and usually only for exclusives. In fact, I completely missed out on Commemorative Series Sideswipe, and only found out about it online long after they were all gone. I thought it had been cancelled along with rest of the line. I think the last thing I bought from KB was an exclusive Johnny Lightning Monopoly 1/64th car.

Although I am not all that surprised about KB's plight, I agree that it sucks people will lose their jobs over this, and during the holiday season no less. Ironically, it won't affect my area all that much, since the two stores we had closed during the first chapter 11 back in '04.

Hopefully, TPTB over at Toys R Us are paying attention and take steps to ensure they don't suffer a similar fate.