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Retailing

Toys ‘R’ Us Asia aims to expand in the region after divorce from American parent

  • Proposed expansion could see two new stores in Hong Kong and more than 60 more across Asia
  • Fung Group’s stake increases from 15 to 21 per cent
PUBLISHED : Tuesday, 20 November, 2018, 9:55pm
UPDATED : Wednesday, 21 November, 2018, 4:34pm

Toys ‘R’ Us Asia plans to expand its presence in the region, mainly in China and Japan, after divorcing itself from its US parent company which filed for bankruptcy last year.

At a press conference in Hong Kong, Andre Javes, president and CEO of Toys ‘R’ Us Asia, repeatedly stressed that the Asian business is now completely separate from the troubled US entity, Toys ‘R’ Us Inc, and that its shareholders are focused on developing the market in the region.

He outlined expansion plans at the event on Monday, which included opening 68 new stores, principally in China and Japan. And in an interview with the Post he said that the company was looking at new markets such as Indonesia and Vietnam, and that discussions were under way for two new shops in Hong Kong.

Javes also promised new investments in IT and e-commerce, though Toys ‘R’ Us has a very loyal customer base that prefers shopping in stores, unlike most other product categories that are switching rapidly to online channels. Average “dwell time” in Toys ‘R’ Us stores was over an hour, while overall sales via e-commerce channels amounted to between 5 and 10 per cent of total sales, depending on the market, Javes said.

Javes said Toys ‘R’ Us Asia had been growing rapidly despite the troubles in the US, registering “double digit” revenue growth over the last five years and opening 49 stores in the past year, most of them in China.

The management team is monitoring the impact of an economic slowdown in China, though Javes said spending on children was relatively “recession proof”.

Toys ‘R’ Us Asia was originally owned as a joint venture between Toys ‘R’ Us Inc and Fung Retailing Group, part of the Fung Group. Fung Retailing and Toys ‘R’ Us established the company in 1986, with the Hong Kong-based partner holding 30 per cent.

In May 2017, Toys ‘R’ Us Japan was folded into Toys ‘R’ Us Asia, and Fung’s share in the joint venture dropped to 15 per cent. The Japan deal added 160 stores to Toys ‘R’ Us Asia, which already operated 223 stores across Greater China and Southeast Asia.

Toys ‘R’ Us files for bankruptcy in US, but it’s business as usual in Hong Kong

The new deal raises Fung Retailing’s stake in Toys ‘R’ Us Asia to 21 per cent, a US$189 million shareholding at the company’s current valuation at just under US$900 million. Annual turnover at Fung Retailing is about US$3 billion.

Fung Retailing’s new partner shareholder is a consortium of Toys ‘R’ Us’ lenders known as TRU Taj LLC’s Senior Secured Notes, which now holds 79 per cent, with a core group of significant lenders holding 60 per cent of the debt, according to Javes. The deal was partially a debt-for-equity deal.

Fung Retailing remains the biggest individual shareholder.

The new ownership structure means the Asian toy vendor can refocus on its expansion plans for the future without the distractions that have occurred over the past year regarding the US company’s bankruptcy proceedings, Javes said.

“This is a process that we embarked on in February,” Javes said. “It’s been long and arduous for us, there were many active bidders throughout that process.”

Toys ‘R’ Us Asia has secured the brand name for use under a master licensing agreement that is good for 20 years or more, according to Javes.

The new shareholding structure needs another 10 days to be finalised in court, at which point a new board will be appointed, which will no longer have to report back to the parent company, Javes said. He declined to say whether an IPO was in the offing, or if any of the partners in Taj Holdings would be willing to sell down their stakes.


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