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Entrepreneur
Join Date: Oct 2002
Location: USA
Posts: 31,429
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KB Toys Goes Belly Up
First FAO Schwartz, now KB Toys. Looks like it was a bad year for the toy biz. Sorry to see KB go, they had great prices.
Hit By Discount Chains, Struggling KB Toys Files for Chapter 11
SPRINGFIELD, Mass. · Blaming the fierce holiday price wars in toys, KB Toys Inc. announced Wednesday that it has filed for bankruptcy protection from its creditors.
The privately held retailer with 1,300 stores was hit hard by competition from discounters, primarily Wal-Mart Stores Inc., during the holiday buying season. Last month, it informed suppliers that it was slowing down payments amid sluggish sales.
The filing under Chapter 11 of the federal bankruptcy laws will enable it to develop a financial reorganization plan while continuing its business operations.
It said it hopes to emerge from bankruptcy protection before the 2004 holiday season.
KB Toys, which accounts for about 4 percent to 5 percent of the U.S. toy business, was the second casualty in the toy market this season. In early December, FAO Inc., owner of the famed FAO Schwarz toy stores, filed for Chapter 11 for the second time.
Toys "R" Us Inc., the nation's second-largest toy chain behind Wal-Mart, also suffered this past holiday season. Earlier this month, it said its overall sales rose less than 1 percent for the critical holiday sales period, and that sales at U.S. stores open more than a year fell almost 5 percent. The company said profits would be less than expected for the year.
Independent toy consultant Chris Byrne said he was "resolutely optimistic" about the future of KB Toys, but said the company will have to "redefine who they are in this marketplace and establish a niche."
"They were forced or chose to compete with Toys-R-Us and Wal-Mart, and it's an equation that they can't really win," he said.
The 80-year-old KB Toys, based in Pittsfield, Mass., announced it has secured $350 million in financing from the Fleet Retail Group.
Officials blamed increased price competition in the toy market for a sharp decline in its sales and earnings during the fourth quarter. Wal-Mart, for example, took the industry by surprise when it slashed prices on hot toys in October, several weeks earlier than in the past.
"We have been assured by many of our vendors, landlords, and other interested parties that they see an important and continuing role for KB Toys in the retail toy market, and will work with us to achieve approval of the reorganization plan," CEO Michael L. Glazer said in a statement.
"Given the tremendous support we have already received, we are confident KB Toys will emerge as a stronger and more competitive organization," he continued.
Initially, the company would look to close unprofitable stores, reorganizing its operations and cutting staff, he said.
"We have no information at this stage where we will be closing," John Reilly, a company spokesman said.
South Florida has 11 KB Toys and two KB Toy Works.
Kristen Swain, the manager at KB Toys in the Galleria Mall in Fort Lauderdale said that the store, which will close on Jan. 24, had already been scheduled to close before the bankruptcy filing because it was facing higher rent and its lease was up, she said.
The company has about 13,000 employees nationwide.
In its petition filed in U.S. Bankruptcy Court in Delaware, the retailer listed $507 million in assets and $461 million in liabilities as of Jan. 3.
It said it had about $116 million in outstanding unpaid bills for merchandise.
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