5 Years After Bankruptcy Most Toys R Us Stores Have New Tenants And Uses

Toys R Us filed for bankruptcy 5 years ago this week.

It was the 3rd largest retail bankruptcy in U.S. history.

All 725+ #ToysRUs stores closed for good.

But its real estate has not remained vacant.

Just 5 years after its bankruptcy filing and liquidation, ~90% of former Toys R Us stores now have new tenants or uses.

With a history that dated back to the late 1940s and a dedicated focus selling children's toys and furniture, Toys R Us was one of the earliest “Big Box” retail category killers in the United States.?Stores averaged approximately 40,000 square feet and were prominently located in key retail trade areas throughout the country.?

When Toys R Us filed for bankruptcy in 2017, it generated over $11 BB in annual sales and employed more than 30,000 people. Its U.S. division operated approximately 725 Toys R Us and Babies R Us stores in 49 states (all except Wyoming) as well as in Puerto Rico.?

In all Toys R Us occupied more than 30 MM square feet of commercial real estate.

But Toys R Us failed to keep up with shifting consumer preferences and changes in technology.

?And it took on loads of debt in a 2005 leveraged buyout.

?The end result?

?Bankruptcy, liquidation, mass store closures.

?And 30 MM+ square feet of vacant real estate!

But nothing was wrong with the Toys R Us real estate.

In fact, it has been in high demand from large national retailers such as Burlington Stores, Big Lots, Ollie’s Bargain Outlet, and Hobby Lobby.

These four retailers alone have opened in approximately 150 former Toys R Us sites - or about 25% of all re-tenanted stores.

Other established and growing retailers have also taken multiple Toys R Us sites.

And emerging concepts as well.

For example, at least 10 former Toys R Us and Babies R Us stores have either opened as - or are rumored to be in development to be - an Amazon Fresh Grocery Store, including the store pictured below in Bloomingdale, Illinois.

The most common Toys R Us replacement tenants by use type include:

1) Off Price Retail (30% of backfilled stores);

2) Furniture (20%);

3) Grocery (9%);

4) Craft Stores (6%); and

5) Sporting Goods (5%).

Approximately 110 Toys R Us stores (~17% of re-tenanted sites) have been converted into non-retail uses such as self-storage, fitness centers, and medical facilities.

Many also now feature automotive uses, including dealerships, collision shops, and even car washes. And at least four former Toys R Us stores - including the site below in Copley, Ohio - will operate as Tesla service centers.

Other unique re-uses of Toys R Us sites include:

1) Department of Veterans Affairs Clinic in Des Moines, Iowa;

2) Centerbranch Church in Bridgeport, West Virginia;

3) Covenant for Life Child Development Center in Hazelwood, Missouri;

4) Plumbers and Pipefitters Training Center in Wichita, Kansas; and

5) Willamette Career Academy in Salem, Oregon.

Why has Toys R Us real estate been in high demand?

• Location: most Toys R Us stores were located in dense, high traffic retail trade areas. Many were situated on large parcels with plenty of available parking, easy access and good visibility - features that are attractive to all types of retailers.
• Building Type: ~37% of Toys R Us stores were freestanding buildings that were not attached to or part of larger shopping centers. They featured high ceilings, no interior load bearing walls and many were located in communities that were willing to re-zone the properties to accommodate alternate uses. This enabled many former Toys R Us sites to be converted to non-retail uses such as for automotive service and self-storage – or even demolished and redeveloped into small multi-tenant buildings and restaurants. Only 12 Toys R Us stores were in malls where adaptive re-use is more challenging.
• Lost Sales/Market Share Capture: despite the fact that the Toys R Us chain filed for bankruptcy and liquidated, many individual stores generated high sales volumes and operated profitably. As a result, retailers that offered comparable products and/or targeted similar consumers as Toys R Us had a unique opportunity to capture some of these lost sales by locating in stores that had a proven sales record and customer base.

What are takeaways from the rapid re-tenanting of Toys R Us real estate?

1. Demand continues to be strong for Big Box real estate - especially among “2nd generation” users that seek stores that can be leased at lower rents and less cost to renovate (especially if they come with a proven customer base).
2. Well located Big Box real estate has significant adaptive re-use potential. Good retail sites are often just as good (or even better) for other uses - and freestanding Big Box buildings can be adapted for other uses.
3. The bankruptcy of a large retailer does not automatically result in long-term vacancy. Toys R Us is not unique; many of the thousands of stores vacated by Kmart, Sports Authority and other bankrupt retailers were also backfilled or redeveloped with relatively short periods of downtime.

Ultimately long term retail vacancies will likely be concentrated in functionally obsolescent properties with limited redevelopment flexibility (like many enclosed malls).

And as for the remaining retail real estate?

It may even be more in demand.