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.
Here's why...
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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[mmcallout type="pullquote" social="false" align="left"]"The demise of Toys R Us is a lesson for all retailers, and it's a lesson for investors."[/mmcallout]
"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...
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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."
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.
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