Toys 'R' Us Founder Charles Lazarus Dies at 94

https://www.bloomberg.com/news/articles/2018-03-22/charles-lazarus-who-founded-toys-r-us-retailer-dies-at-94

by shahocean • 8 years ago

174 76 8 years ago

bloomberg.com

et-al2• 8 years ago

Might I suggest we link to the Bloomberg article which Kotaku references? It offers a longer biography of the founder:

https://www.bloomberg.com/news/articles/2018-03-22/charles-l...

jessaustin• 8 years ago

That is a nice article. What a strange maneuver from his second wife! He must have been desperately in love, to sign a prenup like that.

...their only regrets were employees who would be losing their jobs, suppliers who would be losing their best customer and all the kids who won’t grow up with Toys “R” Us.

Ugh, if my nieces and nephews are any indication, kids will still get way too many toys even without this store.

erickhill• 8 years ago

I'll never forget going to Toys R Us and walking down the computer/video game aisle. It was vast. Wall-to-wall Atari, Commodore, Vectrex (!!) ... walls of just game boxes you could look over. Then pull a slip of paper out and walk to a literal Cage where you could get the real deal.

That place was magical to me as a kid. (1980s, if it isn't obvious.)

dang• 8 years ago

Sure. Changed from https://kotaku.com/toys-r-us-founder-has-died-1824003155?IR=....

neonate• 8 years ago

http://archive.is/FCZcE

csours• 8 years ago

I can't even imagine how heartbreaking this would be.

aphextron• 8 years ago

All in a day’s work for Bain Capital.

jjeaff• 8 years ago

They have more wins than losses. And that's saying something, considering they only take on highly distresses companies.

dmix• 8 years ago

What poor timing, oh well he had a great life and great accomplishments during his prime.

saddled with more than $5 billion in debt

Wow, I haven't yet followed the story of Toys R Us but that is a huge amount of debt. I can't imagine what severe mismanagement happened at the company to allow this. Must have had some ex-government workers managing finances (/s)...

Since Lazarus stepped down as chief executive officer in 1994

Ah, so it was well after he left. It's sad to see your creation falter but it wasn't his baby anymore. Many great companies end up failing after their original founders leave. I'd be curious to read more about how they messed it up so badly.

xigency• 8 years ago

Two words: leveraged buyout. I'm not sure what purpose they serve other than to create debt.

Working at a company that was acquired by a smaller fish with a $4 billion loan, it made things painful when cuts were constantly made to pay interest on debt. Somehow, the situation benefited the shareholders that signed off on the deal.

jackfraser• 8 years ago

Well yeah, it's pretty straightforward. Company A borrows $4 billion; it's leveraged against the company they're going to buy; they buy Company B, paying out the shareholders, and B merges into A and keeps the debt.

I'm having a struggle with whether this seems moral or not. B is saddled with a big debt, and employees of company B may suffer as a result of this (anything from losing bonuses or profit sharing opportunities, to losing headcount, or having the very future of the company put into question). The new owners also have to live with this situation, while the old owners skip merrily away with their profits gleaned from the future work that will be done to pay down the loan.

This seems negative, but has to be balanced with the fact that the shareholders of company B are the owners of the company, and it is their decision to do as they wish; if they're offered a certain sum for their shares, it's their choice to take it. It's unfortunate that this comes with blindness to the future impact of that action, but this may be a necessary or at least presently contingent artifact of capitalism.

santiagogo• 8 years ago

Well, to be fair, leveraged buyouts can be a useful tool to take over a company when there is a bad management team or an opportunity to generate a synergy when it is bought by another player in the same segment. For example this was recently the case with Dell and Hilton.

But generally the high amount of leverage implies aggressive cost cutting, which negatively impacts the employees and in some cases R&D, which in turn means risking the future sustainability of the company for short term profits.

If you're interested in the topic, "Barbarians at the Gate" is a great book to understand the in and outs of LBO's. The writing style also makes it fun to read.

mti27• 8 years ago

Don Draper said it best: "Do you want to build something, or help an accountant turn a dollar into a dollar and 10 cents?"

I can say from personal experience if Blackstone buys your company you'll be focusing on the second objective.

walshemj• 8 years ago

well actually the heavy debt based corporate actions can really hurt share holders if as often happens it goes pear shaped and the share holders get 90% wiped out by the bond holders

The ones who win are the corporate finance companies who make $ by arranging these complex financial instruments.

VLM• 8 years ago

I think you have confused cause with effect.

Debt is cheaper than equity. The purchaser isn't diluting their equity returns as much so in theory they're getting a higher return. Interest is usually slightly higher than usual corporate lending so banks win. The profits should be more positive so the purchasee employees should be better off.

So a LBO is a generally good idea other than its much more complicated and only scales to large purchases (like a nationwide toy store, perhaps)

The effect you're probably confusing with the cause, is a deal thats dead, zero-sum or worse, with a pure equity structure might barely flip slightly positive if you do some financial alchemy and run it as a LBO... however thats exactly the kind of situation thats highly likely to crash and burn, no matter what you do. Essentially you get to try doing nothing and go out of business two years ago, do a pure equity deal and go out of business last year, or do a LBO and go out of business this year, or maybe, possibly, LBO has the best chance of making it.

Its a common pattern often seen in military or business argument, a small scale tactic that maximizes success (minimalizes failure, I guess) when in retreat somehow gets blamed as the sole cause of the entire retreat itself. Smoke grenades screen a retreat better than clear air, therefore the war was lost or maybe a bad idea to start because we tossed smoke, well, it doesn't really work that way.

In a very wide sense you are sort of correct that a deal or a company thats only microscopically barely alive by using every trick in the book including LBOs is correctly perceived as a dead company walking; just remember that almost all companies that successfully LBO are never talked about, therefore in a weird survivorship bias like scenario the general public will never hear about LBOs except in the case of a dead company. A good analogy would be lots of people who die immediately spent some time in a ICU, therefore there seems no purpose to ICUs other than death. However, many/most people only spend a little while in ICU and then recover but you'll never hear about it, they'll just call it post op recovery or critical care or some similar euphemism.

Another weird medical analogy is doctors play an odds game. If the medical advice is the lowest risk treatment X is 90% success and 10% fatal, one patient dying doesn't disprove that advice, especially if 9 or more live, also you're only likely to hear about the fatalities which causes a false belief that docs are always wrong.

darkkindness• 8 years ago

You might be interested in a HN submission from last week, a WaPo story of a brief history of Toys 'R' Us' recent financial troubles. In short:

The company has struggled to pay down nearly $8 billion in debt — much of it dating to a 2005 leveraged buyout — and has had trouble finding a buyer.

https://news.ycombinator.com/item?id=16588564

et-al2• 8 years ago

Thanks for the link! I didn't see that submission and there's a great string of comments about Venture vs Vulture Capitalists there.

rhizome• 8 years ago

I can't imagine what severe mismanagement happened at the company to allow this.

...thy name is Bain.

soperj• 8 years ago

The irony of your statement when it was the leaders of the free market managing the finances...

DigitalSea• 8 years ago

I'd be curious to read more about how they messed it up so badly.

They failed to embrace online, that was their downfall. They didn't take it seriously, opting to let someone else handle online for them, one of the largest players in the ecommerce space: Amazon.

It goes back to the year 2000 when Amazon and Toys R Us signed a 10 year agreement that would make Toys R Us the exlusive vendor of toys on Amazon. So what happened was when you would click on toysrus.com it would send customers to their page on Amazon.

The deal started to fall apart when Amazon started allowing other toy retailers to sell through its site, because they complained Toys R Us didn't carry enough stock. So, they sued in 2004 and terminated the contract, then did its own online thing in 2006.

Coincidentally, the same thing happened with Borders (the large book store chain) which had a similar partnership with Amazon, lost out on embracing online and owning the entire workflow of selling online. Essentially Amazon was the site customers would see when ordering from these retailers.

Unkechaug• 8 years ago

It's funny, I was pretty young back then and I though Amazon WAS TRU because of those site redirects. It remember going on the site and thinking how incredible it was, they had everything compared to other store websites and even other stores in person. It really left an impression on me and was a gateway that guided me to primarily shop at Amazon for years after - really just until recently.

varjag• 8 years ago

Lesson there: don't outsource your sales.

L_Rahman• 8 years ago

This is the opposite of correct. Toys R Us core business is profitable and throws off 200 million in profits a year.

The reason they went bankrupt is that a private equity company bought them in an LBO and the debt load became unserviceable.

mgkimsal• 8 years ago

It goes back to the year 2000 when Amazon and Toys R Us signed a 10 year agreement that would make Toys R Us the exlusive vendor of toys on Amazon

If you go back a bit further, TRU had tried and failed a couple of years to do their own ecommerce. IIRC, both attempts were built on coldfusion, and both failed pretty hard. Not that it was necessarily solely CF's fault, but there were problems (probably a combination of technical and political) that prevented TRU from doing their own ecommerce. A deal with Amazon to handle your ecommerce was probably about the dumbest "short term thinking" move a company that size could make. I say it with the experience of having worked in ecommerce in 1998/99/2000 and saw behind the scenes of some pretty large operations. It wasn't pretty, but TRU could certainly have made things work on their own or outsourcing to a company like where I was working then, and it would have worked, without resorting to Amazon.

truthrowaway62• 8 years ago

We tried to sell them while I was at Shopify Plus. They laughed at us for "only" charging $2k/month for ecommerce, said they expected to spend way more on an "enterprise" platform. Never ended up replatforming, never found someone expensive or "enterprise" enough (lol).

rando444• 8 years ago

I'm going to recommend this article, which another user had shared in a related thread:

https://www.rollingstone.com/politics/news/greed-and-debt-th...

Posibyte• 8 years ago

My thoughts on why they failed, I feel, are a lot more simplistic. Maybe oversimplistic and based on my own anecdotal experiences, but I don't see myself as an outlier here, so I feel a connection to others that went this way.

Simply, Toys 'R' Us did it the best, but their competitors, Walmart, Target, etc. did it at all. Sure, I couldn't go play a Nintendo Gamecube at Walmart like I could at Toys 'R' Us, or see all the neat Lego models and peer at them... it was still competitively priced and super convenient.

They were doing as a specialty what Walmart made a department. Home Depot and Lowes seem different to me. There's an air of skill needed in a lot of what they sell, so the added friendliness and help is a great value-add. But Toys 'R' Us, I believe, lacked that. What kind of value can you add to a toy that another big box retailer can't very easily? Other than the odd collectable that popped up here and there, TRU never really gave me a good reason to add them as a stop to my trip.

Only reason they failed? I highly doubt it, but I feel it was a big reason. I think they would have worked pretty well if they leveraged their experience and connections and joined with one of the big retailers like Target or K-Mart.

EDIT: And I know they sorta joined with Amazon, but I mean more in terms of a place where they could set up displays and let kids really go to town with feeling the atmosphere of the store. That, to me, was their game and they did it well.

drawkbox• 8 years ago

"I don't wanna grow up, I'm a Toys 'R' Us kid"...

jordanmoconnor• 8 years ago

Just realized the phonetic connection between Lazarus and Toys 'R' Us.

jonbarker• 8 years ago

I still don't think online will take off soon as a popular way to buy for toys. There is a reason why almost all toys come semi demo-able with buttons you can push and open-ish boxes. Amazon is apparently behind in apparel for a similar reason, you can't try anything on!

danvoell• 8 years ago

I respectfully disagree. I think the only thing going for toy stores is last-minute shoppers. Sure if you get a toy in a kids hands, they're going to want it. Which is exactly why I don't want to go to toy stores with my kids. I can find new toys online that my kids like instead of being forced to purchase whatever mass consumer toy is in my face when I walk into toyRus because they are getting a bigger kickback on it.

swalsh• 8 years ago

My son just had his birthday, we took him there and gave him a $20 (we got him a few other things, but we wanted to teach him about money) and let him choose how to spend it.

You could do that online, but when you get to run around the store looking at the toys, it's clearly more fun for him.

There are a few bespoke toy stores around me, but Toys R Us is his favorite.

dugluak• 8 years ago

I admired Toys R Us. It was a complete shock and utter disbelief when I heard the news of the bankruptcy. Because the way the stores are run it never felt that way, although the question that how do they manage to do all this was always there in the back of my mind. I wonder why, if they are so much in debt and not doing well, nothing much has changed inside the store over years. Its the same huge store with loads of stuff pouring out of every corner. I don't know why they didn't consider cutting down costs at the store level.

menacingly• 8 years ago

I've been having an interesting loop of thought about this chain's bankruptcy. Obviously, I'm nostalgic about it, and it's sad, but I am hesitant to say that a national chain going away is some cultural blow.

Given my age, I tend to think it's sad that shopping is less of a social event now. However, I don't think it's a core spiritual need that we go somewhere and spend money together. In fact, I'm not even sure it's a positive.

If people are taking care of their shopping at Amazon, maybe that's more time to do real social stuff and not consumerism masquerading as social stuff.

Toys 'R' Us Founder Charles Lazarus Dies at 94

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