Toys R Us closing 64 stores

Associated Press

TRENTON, N.J. – Toys R Us Inc. plans to eliminate 1,900 jobs, or about 3 percent of its permanent work force, close 64 U.S. stores and consolidate support services as part of a plan to cut costs and boost profits.

The moves announced Monday come as the Paramus-based company’s earnings have slumped because of the economic slowdown and extensive remodeling costs.

Toys R Us, the second biggest U.S. toy retailer after Wal-Mart Stores, said it will take a $213 million pretax restructuring charge in its fiscal fourth quarter, which ends Feb. 2.

The company said the cuts would increase cash flow in 2002 and beyond and boost pretax earnings by about $25 million in 2002, and about $45 million annually beginning in 2003. Payroll savings associated with consolidating support services would account for $30 million of the $45 million.

“The senior management and the middle management all agree it’s time to become much more professional, much more streamlined,” John Eyler, chairman and chief executive, told analysts in a conference call.

At the same time, Toys R Us is remodeling more stores and testing new concepts, such as stores that sell groceries or combine kids and baby apparel and other products with toys.

In late trading on the New York Stock Exchange, Toys R Us shares were up 6 percent, or $1.15 a share, to $19.90.

The layoffs include about 1,350 people from the stores being closed and about 550 from streamlining support services. Worldwide, Toys R Us has about 70,000 permanent employees; that balloons to about 120,000 during the holiday sales period.

The company will close 27 Toys R Us stores that were making money, but not enough to justify extensive renovations to its latest format, dubbed “Mission Possible.” It features themed toy areas and low shelves, rather than the long aisles and high shelves some customers found difficult to navigate; those stores have been clearly outselling ones not yet remodeled.

Meanwhile, 37 Kids R Us stores will be closed, but most will become part of a combination store in the nearest Toys R Us location. Eyler noted the Kids R Us division “has been struggling for several years,” so the company is updating some of the other stores – with easier layouts, new products such as girls’ accessories and bedroom furnishings, and more fashionable clothing. Toys R Us already has 273 combo stores and expects to add about 100 by year’s end.

“We believe that we can grow our market share three or four (percentage) points over the next five years” through conversions to combo stores and remodeling high-traffic locations, Eyler said in a telephone interview.

Toys R Us had about 16.5 percent of the U.S. toy market in 2000, compared to nearly 18 percent for Wal-Mart, he said.

Sally Schaadt, a retail analyst at Fourteen Research Corp., said the three- to four-point gain is possible given that Toys R Us is restructuring fairly rapidly, rather than dragging it out.

“Certainly it should help in the profit area because you’re getting rid of the stores with lower profits” and making remodeled ones “a destination” for area shoppers, she said.

The company won’t identify which stores are being closed for about 10 days, partly because employees losing their jobs are still being notified, but most are in smaller markets, Eyler said.

The closings will take place between now and year’s end, while “the vast majority” of layoffs in financial and administrative support services will happen over the next 10 days, he said.

Ten of the Toys R Us stores being closed may be relocated. The company has 1,609 stores under various names overall.