There was a Ninja, some woman with green hair named Gertrude, probably my sister Vengeance, and Lord Skywalker. You know. The one that likes to snorkle.) colabed on a story! On Toys "R" Us being effed over, Finances, and who you should be Flippin' mad at. · 9:55pm Mar 19th, 2018
Okay gang,
First off, I'm not an economist, I just like economist radio because it informs about the world in a slightly less biassed way than most and usually doesn't fill me in an incandescent rage.
SPEAKING of incandescent rage, lemme get to my post:
I saw a post on Facebook where people are MAD at Toys "R" Execs because of the 16 million dollars they get to share out of this debacle.
This post! This post right here!
So, the narrative this photo is trying to spin, it seems to me, is that these EEEEEEVIL execs ran the company into the ground and are now laughing all the way to the bank while the poor working stiffs suffer, which is probably EXACTLY the narrative the people ACTUALLY responsible for this mess want you to subscribe to.
Lemme clear some stuff up. Now, we all know it's a given that we should hate "the man" and the dirty capitalists that are part of the system, but Toys "R" Us executives are not the guilty party in this case. I'm sure many of them are guilty of other crimes, j-walking, doing blow off a hooker's buttcheek, using their toy money to try to become DC Super Villian Toy Man and take out Superman with a giant robot that looks like a 1950s throwback toy... or even the crime of dressing like Toyman.
Also known as "Not allowed near schools or playgrounds Man"
However, Toys "R" Us going under? Not really their fault.
See, back in 2005 things were looking pretty grim for Toys "R" Us because of online sales were starting to kick behinds so hard their ass was starting to turn concave. Knowing they needed a ton of money to stay afloat and make their website not suck so they could compete, they sold themselves to the tune of $6.6 BILLION (with a B) dollars. The private equity firms Bain Capital and KKR and the real estate investment firm Vornado ponied up about $1.6 Billion and took the other $5 big-Bs as debt... which they put on Toys "R" Us to come up with because...I don't know... In the world of finances, I guess you pretend money exists were it does not and either you're rewarded with money falling from the sky for everyone or just money falling out of the sky for you.
So, Toys "R" Us basically was given a reprieve at the price tag of $5 BILLION dollars of debt. That sucked for the company and these "evil" executives knew it. But by all accounts, they tried HARD not to let this happen, but the deck was stacked against them and also given knives to stab the hands of those who tried to reshuffle it. So, if you're going to be mad about any of this, save your hate for the companies mentioned above.
Also, 16 million (that's only six zeros to billion's nine) feels like a laughably small amount in this case. I'm not sure how many people that's spread across but looks less like golden parachute money and more "parachute that's sparkly because it's literally on fire" money by most accounts. Also, if you tried to spread that 16 mil 31,000 ways, that'd be about $500 for everyone.
So, again, if you want to be mad, be mad at the people who made money for running a company into the ground Bain Capital, KKR, and possibly Vornado for EACH possibly making as much as being spread across the Execs who probably put on boxing gloves to fight that level 5billion hurricane. Those three companies also made no money for their investors, so eff 'em in general.
If you want to learn more from a source that sounds like and definitly knows more of what it's talking about, check out this article here.
https://www.marketplace.org/…/toys-r-us-and-how-retail-down…
A voice of reason?
The 'ell is wrong with you?!?! This is the internet, be incoherent!
Toys 'R' Us has been dying for a long, long time. Anyone who has been in one of their stores in the last ten or so years could tell you that. It does suck a bit though, I've gotten some killer deals through them throughout the years for gifts.
Seeing the first image you posted I was just about to say the same things. Glad to see that some try to see what really happened and not get angry based upon headlines and biased journalists looking to create mob outrage.
I agree, Bain Capital loading up companies with unsustainably high levels of debt and then selling them back to the public like a ticking time bomb is pretty crappy. 3 Companies in the last few weeks have had to declare bankruptcy beacuse Bain pulled this trick: https://www.forbes.com/sites/walterloeb/2018/03/19/bain-capital-sees-three-investments-go-bust-toys-r-us-guitar-center-and-iheartmedia/#272cc59e664d
That said, Toys R Us also let Amazon handle their online presence for a decade rather than trying to build their own online shopping network, which caused Toys R Us to fall behind online. Between that and failing to do any work over the last 10 years to update and refine their shopping experience the way Best Buy has, I'm pretty unimpressed with the Toys R Us executives.
Not to belittle the content of this post (which I do think is important and I appreciate the external info you're giving us) but I really want to see a Peter Dinklage version of that Toyman. What... what kinda stuff can he do?
The explanation I read on the BBC news website is that most Toys R Us stores are big warehouse-style things, like Matalan, and they come with massive rent. They suited the shopping habits of the nineties, but the internet has reshaped things now and they're too expensive to maintain.
There's a certain toy I'm hoping to pick up laughably cheap in their final sale, but the price on their website is 20% higher than everywhere else - if that's the pricing they were operating on, it's sadly hardly surprising they couldn't compete with places like Amazon.
Thanks for this post, it was really informative
4820488
I get this is relatively somber and all, but I have to agree with this guy. What is Toyman? What can he do? And most importantly, can we get a petition for Peter Dinklage to play him?
I only remember going to Toys R Us for event Pokémon like the level 100 Regigigas and the Arceus when I had Diamond, Pearl, and Platinum
I hope Toys 'R' Us somehow manages to stay afloat, I have fond memories of getting many things from there, spending hours getting lost in those aisles, fantasizing about all the cool stuff I could do, while vigorously ignoring the price tags.
I just saw a video about this very thing today!
I'm sure those 31,000 employees out of a job would love and benefit from a $500 severance package.
Good article - I do like Marketplace's coverage. That said, while it does explain the major part of the problem it doesn't get into WHY the current execs are getting bonuses at all. So it doesn't do anything to negate the CNN headline posted up top, tho I agree it's intentionally over the top and inflammatory. It's less about the amount of money and just the principal of the thing - what have they done that warrants a bonus?
Most likely answer - it probably was in their contract when they were hired. Which also doesn't really sit well with most people. But it's essentially just "the way things work" at that level and if a company needs to hire executives that's the kind of thing they have to include in the contract.
f*ck CNN
Thanks! It is nice to hear a voice of reason on the internet.
Interesting. I had not heard the golden parachute was a shared one, though i did know about the trouble. Still those of use with nostalgia want to be pissed at someone and the exes are an easy target. Which explains the lack of research ... in everything really.
It's known as a leveraged buyout, it's often given when someone buys up a struggling company.
You want to know who else had this exact same thing happen?
KB Toys. They were run into the ground...By the exact same companies. in Specific Bain. They actually have a LONG history of doing this as well.
As what happens in a leveraged buyout is they literally take control, and make demands of the now subservient business to get their money back. But due to the terms of the leveraged buyout, they only need back 20% o what they put in back before the entire thing turns into profit.
The thing about it is...those that do it aren't interested in keeping that business solvent. They only care about fleecing it for everything they can before cutting it loose with all the debt they wracked up on it. Toys R Us actually DID make more than enough profits over the last 10 years to both absolve their debt, pay their workers, upgrade their stores and website, and so on...but it was all taken by those AT Bain Capital, KKR, etcetera. They never gave a damn about keeping it running properly.
And the worse thing is...Toys R Us, had they not been bought out, would've been fine. They'd absolved their previous bankruptcy just fine, but it's this additional debt Bain and Co put on them... It's long been writing on the wall that they were being mismanaged into oblivion.
4820651
I'm sure they would, but the executives are the more valuable employees and are entitled to higher compensation.
4821399
How do you define valuable?
4821405
It's really not me who defines valuable, but the company. I'm not exactly sure what makes an executive so much more valuable than a cashier, but if they weren't, Walmart(or any other company) could start hiring executives at minimum wage then blow every other competing business out of the water with that competitive advantage. Given that Walmart has not used that competitive advantage, I assume it does not actually exist.
4821444
It's pretty reasonable to assume the executives also have education and probably many years of experience. I mean, it's certainly debatable how much they should be worth, but as I mentioned, 16 million spread a buncha ways across a company that big is a pretty small amount and is really closer to severance pay than a bonus. Even if that money was spread a bit more evenly, it'd be likely much of it would go to store managers and such and even distributed via years of service. It's not likely there'd be much of anything for the majority of workers anyway, it's not really a product of the execs being evil money hoarding scumbags, more just how business work in the US.
I read up on it.
FYI, the judge presiding over the case approved of a 14 million plan, 5 million of which is contingent on the execs producing a viable plan for getting the company out of insolvency. The original 16 million was rejected, I believe.
Also, it must be noted that, while the meme-ish picture above isn't a proper direct comparison, the primary objector isn't a bunch of outraged liberals, but the United States Trustee Office. They posited that the 16 million will go to senior executives - and that they are overcompensated beyond industry equivalents already.
Note: the money is to be shared amongst exactly 17 people. This means that they wanted a little less than a million each. This isn't a bonus for all the executives, just the top guys.
What feels outrageous to me is that the execs claim this is necessary to retain them(selves) due to the stress of the bankruptcy and the holiday season. Which gives me a headache, because everyone else is expected to want their jobs for the basic pay, yet executives apparently will quit without nearly a million average in bonuses?
Now, about the debt and blaming the creditors: it reaaaaally should be noted that no one tricked Toys R Us into that 5 billion in debt. They have lawyers, and it wasn't a hostile takeover of anything. The very senior management getting the bonus were the ones who arranged the deal in the first place. So really, I don't see why we should blame their creditors for saying "Okay, we'll lend you money if you pay it back!"
If anything, the execs are the ones who effectively sold their creditors a crappy company.
On the flip side, the firing 31000 employees is quite normal in a bankrupt company. What is true is that both these things happened at different times and are different events: the bonus was last year in November and the firing was last week, as the company closes every store in the USA.
4821751 I felt this post ( 4821072 ) helped spelled out why Bain and crew deserves some scorn here, or someone/some peoples in charge of managing the company they bought. I'm sure there are some execs who are getting more than what they deserve, but the "buy out/refinancing" was about 13 years ago, so it's doubtful all or even most, maybe any of the execs are the ones responsible for this mess. The CEO has only been there since 2015, the CFO since 2014, the CIO since 2016. These are not exactly people responsible for this mess and more those who have been trying to bail out a sinking ship for a few years and I'm guessing most the guilty parties in Toys R Us jumped ship or where fired.
Of course, by that logic, we'd have to figure out who in Bain Capital and the other companies have ALSO been along for that time. It's quite possible the "guilty party" here is a toxic corporate culture from two or three companies.
That's kinda what bugs me about the FB post and quite a few I've seen. It and others like it relie on click bait/knee-jerk reactions to get people mad at this group or another while misdirecting them away from the underlining issues.
4821791
This is fair enough; and I know very well what a leveraged buyout is. However, it really should be noted that the investors bought the company; it may seem like they made a ton of money off it, but Des_Shinta is wrong about how it works. Basically, the investors bought Toys R Us for 6.6 billion. They put up 1.3 billion on their own, and borrowed the rest. This was the 5.3 billion "loan" referred to. They made Toys R Us responsible for its own loan and value, which meant that the company had to pay off the interest itself. This interest is not paid to Bain, etc, but to the other creditors that they borrowed the money from.
What Bain, etc really made out on was about 200million in (crappy) consultancy fees, which it risks against its 1.3 billion investment (and obviously, if Toys R Us actually managed to pay off the huge loan, they'd own the whole company from a 1.3 billion outlay). Incidentally, in the event of a bankruptcy before the repayment of the debt (such as now), they will lose this investment, which they are. Yes - the three companies LOST about a billion dollars on the deal.
BTW, once again, they don't go around forcing people to take their deal; Toys R Us agreed to it, fully aware of what it entailed.
Look, lots of people are saying "These evil companies killed Toys R Us!", when it was more like "These companies made a bad investment on a crappy company, and then managed it terribly".
By the way, none of the above changes the fact that the 17 top executives asked for 16 million (actually no - it was 32 million, 16 of which was contingent on making the 400mil interest payment, which was impossible) in bonuses. I would really like to point out that their creditors (of which the three companies belong to) did not object to the bonus, which is why the judge okayed it (a lesser version, anyway). They instead got 14 mil, 5 of which was contingent on doing all the work they were claiming to do, which was getting the company out of insolvency.
This in on top of 8.5 million already paid out in pending severance, to just some of them.
4 months later, they decide to close almost every store in America, firing 31,000 employees. This is not actually related to the bonus - it's honestly unfair to link the two, and the meme was frankly misleading. But I do understand if some of those employees feel a little miffed when their top bosses managed to wrangle half a million each and then completely fail to do what they were supposed to, which was keep the company functioning under bankruptcy.
It is not clear whether those execs got the 5 million. Let's be real, though: they probably got the money and then closed the stores.
Before you go out thinking that everything would be hunky-dory if they didn't sell out, I'd like to point out that either way, it was screwed: they would instead have been responsible to shareholders, who expect dividends (or rising stock value, and failing either, they sell their shares and share price drops, making it hard as heck to get more capital), and nothing about the market conditions would have changed. Toys R Us wouldn't be dead, but it would still be dying.
4821838
I still can't really bring myself to be mad at the execs given the length of time the current players are involved in the situation and what little (relatively speaking) they seem to be getting for this. It is nice to see a break down of what these finance companies "got" for their troubles. I was aware that the financiers got nothing out of the deal and did understand some money changed hands, but it does help to see it in terms of more "payment for rendered services" rather than the three finance companies sucking Toys 'R' Us dry.
Through researching this, I did find it interesting that Bain also purchased Dominos Pizza at one point and seemingly with the help of current CEO of Toys R Us, managed great success over there. So it's clear their business model doesn't seem completely based on buying companies and riding them until the wheels fall off.
I suppose the best take away here is that a great deal of the articles on this topic (and in the news general as of late or for a while now) are trying to direct the reader to a "guilty party" they should be mad at. Especially here when a lot of adults are ANGRY a piece of their childhood is going away. I mean... I've heard the "I don't want to grow up..." jingle about as much in the last few weeks as I had in my entire life prior. A recurring theme of "mismanaged finances" seems to be popping up, but I'm starting to put together a picture of this being happening between a few companies, Toys R Us included, over the course of many years with many faces leaving or being booted out during that time, so it's looking increasingly unlikely there's a "villain" here.
Honestly, if anything killed Toys R Us it was probably a desire to stick to their current business model and upselling the products above seemingly everyone on the planet. I'll grant that they're a convenient place to pick up b-day or Christmas presents for kids and I even have a few figures I've gotten from their store on my desk here. Still, increasingly toys and figures for myself have come from E-bay or Amazon, either because it's not at the store or on Toys R Us's website, cheaper, or both.
4821853
I tried to be as fair as I could in my evaluation: the execs were scummy for asking for a fat bonus in the middle of bankruptcy (what the actually got might not have been quite so fat, depending on whether they made the 5 mil), but they're not solely to blame for the company going bankrupt. On the other hand, it's not at all right to imply that "The execs paid themselves 16 million and then financed it by firing everyone". Knowing what I do about business, though - it's likely that anyone joining a company in its death throes is likely only doing it for money. I mean seriously - they aren't doing it for the career prospects or the resume.
I myself don't really have any attachment to Toy's R Us, sadly - I didn't get a lot of toys growing up, and where I live there are no shortage of cheap - and crappy, though I didn't know it at the time - Chinese toys being sold for a couple dollars, so when I got any it was one of those (As an aside - I think I might be really into a particular computer game precisely because I never got to own the equivalent toy when I was a kid). My caretakers were far more interested in giving me books, though I did have access to a computer. But I do remember, when I was very young, being allowed to wander Toys R Us with a minder while the rest of the family was busy doing something else at the mall. It was kind of a magical place, filled wall-to-wall with wonder and goodies.
Seriously though - a brick-and-mortar toy retailer in the era of Walmart and Amazon? I fear it was doomed either way.
4821859
Not to nitpick as I've enjoyed most of all your posts so far, but this is pretty much why almost anyone does ANY job.
I'm sure the execs all joined up hoping to make a profit and probably more than what they're ultimately getting, but I'm willing to give them the benefit of the doubt and assume each one at least thought they had a good chance at turning things around. Honestly, if they HAD turned around Toys R Us in those few years, it would have looked GREAT on a resume, though kinda low risk as that now that they've failed, I'm sure most will shrug it off. These guys mostly make annual figures in the millions or at least one million. This is one of the reasons I couldn't really figure out the outrage over the 16 mil. Sure, on it's own it's, more money than most of us see in a lifetime, but split it a bunch of ways and consider the salary of those asking, it's more like these guys getting a several months salary which, if you sort of ignore the amounts of money we're talking about, isn't all that unreasonable.
Because the internet can be awesome at times, I actually found a site detailing out how much they were paid in 2016: https://www1.salary.com/TOYS-R-US-INC-Executive-Salaries.html
Based on these numbers, I can kinda see how 16 mil even split a buncha ways is a little high, though still not really warranting the narrative that "meme-ee" post warranted. Though, as it stands now, it sounds like they're getting rather "lousy" severance pay at best.
4821904
I don't want to quibble too much, because your post was pretty much spot on - except that this is *not* severance pay. High-ranking executives have that written into their contracts, and several of them negotiated it already and separately (to the tune of 8.5 million - and that's not all of them so far, even).
Though it is very sucky that in corporate culture, all the rich guys are always guaranteed their money, while poor people who may be desperately dependent on their job may be screwed. And it's even suckier that they've gone and made this legally mandatory.