Just two weeks after filing for Chapter 11 bankruptcy protection, beleaguered toy retailer Toys R Us has debuted a plan it hopes will save the company.
Spoiler alert: It’s awful, and it won’t work.
You see, the retailer was already in deep, irreversible trouble before it filed for bankruptcy. And this last-ditch effort to reel customers in is only going to dig its grave deeper.
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Toys R Us Is Playing with Augmented Reality
In order to attract more in-store buyers to its over 1,600 struggling retail spaces, Toys R Us has developed an augmented reality experience.
The new experience – which plants computer-generated images on top of real objects in the store – is based off the same concept that sent “Pokemon Go” soaring this time last year.
Using an app, shoppers will be virtually greeted at the store by Geoffrey, the company’s mascot. As they navigate the store, shoppers will be guided by flashing icons and stickers displayed on their smartphones. Then, shoppers can point their tablets or smartphones at various signs throughout the store to bring a toy or activity to life.
For example, a “real-life” version of a doll may come alive on a smartphone or tablet in the baby doll aisle. The app is supposed to keep customers in the store longer because each activity completed unlocks a new one using a points system.
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“It’s going to transform the experience of coming into a Toys R Us brick-and-mortar store and turn it into something that’s quite different and a lot more fun,” said CEO Dave Brandon to USA Today. “We believe that’s going to drive a lot more traffic into our stores, which will ultimately put us in a position where we can be more successful at growing our sales and our company.”
The AR experiences will be in all stores by Oct. 21.
But here’s the problem…
Toys R Us Can’t Ignore Its Debt Load
This new plan does absolutely nothing to address the company’s already existing woes.
Brandon claims that the AR system will make shopper’s experiences “much more fun.” This may very well be true – at least in the short term, before shoppers get bored or run out of new experiences to try – but “fun” doesn’t translate to what Toys R Us so desperately needs to do: pay down its debt.
Toys R Us has a debt problem – and a bad one at that. In fact, the children’s retailer has huge retail space lease payments to uphold in addition to over $400 million a year in debt service. And that debt has paralyzed the company.
“Management could see the coming online onslaught, but couldn’t focus on much more than staying alive by making debt payments,” explained Money Morning Capital Wave Strategist Shah Gilani on Sept. 25.
“The company not only failed to be proactive about its online and multichannel sales efforts, it also failed to cut its extraordinary overhead, namely huge retail stores around the world.”
But instead of shifting some of its weight off its costly brick-and-mortar stores – perhaps closing a few and focusing on its online presence – Toys R Us is doubling down and sinking even more money into its stores in the name of “fun.”
Meanwhile, the debt keeps stacking up…
Toys R Us has a whopping $444 million due by the end of January and another $2.2 billion due at the end of next year.
That’s over $2.6 billion in the next 14 months.
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“In a move one can justifiably call a suicide, the company has choked itself to death with debt,” Shah told readers last week.
“The demise of Toys R Us is a lesson for all retailers, and it’s a lesson for investors.”
What Investors Should Do Now
Toys R Us isn’t the first brick-and-mortar retailer to succumb to the pressures of the new world of retail, and it won’t be the last.
Shah’s tried-and-true method for his Zenith Trading Circle subscribers: shorting these doomed companies all the way down or buying puts on them.
Shah boasts a financial pedigree like no other. He ran his first hedge fund in 1982 from his seat on the floor of the Chicago Board of Options Exchange. When the options on the Standard & Poor’s 100 began trading in 1983, Shah worked in “the pit” as a market maker. He helped develop what is known known as the Volatility Index (VIX) – to this day one of the most widely used indicators worldwide. He’s a frequent guest on CNBC, Forbes, Marketwatch, and you can catch him every week on Fox Business Network‘s “Varney & Co.”
Now, as the editor of Zenith Trading Circle and Capital Wave Forecast, Shah helps his subscribers earn double- and triple-digit gains on trade after trade.
“I keep a very close eye on any profit opportunities these debt-laden relics offer me,” said Shah. “My readers are getting the chance to take down windfall gains as America’s worst companies shutter their doors for good.”
Shah’s long warned about retail’s demise. And he’s identified 40 failing retailers and pinpointed their termination down to the month.
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