Investment firm, Bain Capital, may have done more damage to the toy industry than any other single entity in the industry's history. It was Bain Capital that owned KB Toys and took it into Chapter 11 bankruptcy in 2004. It is the same Bain Capital that, in a consortium with KKR and Vornado Realty Trust, has taken Toys R Us into liquidation.
Bain's actions may have resulted in the loss of tens of thousands of toy industry jobs, thousands of store closings and hundreds of millions of dollars in assets. It has also resulted in the loss of two of our oldest retail toy brands.
Although KB and Toys R Us took very different approaches to the marketplace, they were both venerable brands. Founded in 1922, KB was (and this surprised me) the second oldest toy retailer in US history, second only to FAO Schwarz.
What is disturbing is to see the similarities in the two bankruptcies. In both cases, senior management received millions of dollars in bonuses while suppliers were left with unpaid bills and employees were laid off without any severance.
Here is an excerpt from a Rolling Stone article, "Greed and Debt: The True Story of Mitt Romney and Bain Capital". The article was published August 29, 2012, right in the middle of the Presidential election that featured former Bain senior executive, Mitt Romney and President Obama. It should seem familiar to those who are following the current, slow motion suicide going on at Toys R Us. Below are some notable quotes from the article. I suggest that you read the entire piece.
Bain put up a mere $18 million to acquire KB Toys and got big banks to finance the remaining $302 million it needed.
Rather than cutting costs and tightening belts, Bain added $300 million in debt to the firm's bottom line while taking out more than $120 million in cash – an outright looting that creditors later described in a lawsuit as "breaking open the piggy bank." What's more, Bain smoothed the deal in typical fashion by giving huge bonuses to the company's top managers as the firm headed toward bankruptcy. CEO Michael Glazer got an incredible $18.4 million, while CFO Robert Feldman received $4.8 million and senior VP Thomas Alfonsi took home $3.3 million.
Bain ended up earning a return of at least 370 percent on the deal, while KB Toys fell into bankruptcy, saddled with millions in debt
If that sounds familiar its may be because you recently saw headlines like this: Bankrupt Toys "R" Us wins OK to pay $16 million in executive bonuses". By the way, not only did they pay the $16 million in bonuses after the bankruptcy was announced but those sames executives had received $8.2 million in bonuses prior to the bankruptcy announcement. This despite the fact that they carried roughly $5 billion in debt. Debt that prevented them from competing and ultimately helped put them out of business.
All I can say is let's just hope Bain never again has the desire to play with toys.