KB Toys to file Chapter 11; close all stores

[store215]

KB Toys has returned to Chapter 11 under Prentice Capital Management, the private-equity firm that bought the retailer out of bankruptcy in 2005. However, this time KB Toys is slated for liquidation.

The company plans to quickly start going-out-of-business sales at hundreds of its stores, "in order to take advantage of the last two weeks of the holiday selling season," KB Toys said in a filing with the U.S. Bankruptcy Court in Wilmington, Del.

An "expedited and orderly" bankruptcy liquidation was the only option left for KB Toys, which was hit by the slump in consumer spending that has slammed the retail sector, court documents say.

KB Toys, which is based in Pittsfield, Mass., owes about $65 million on loans to first-lien lenders, and about $30 million on letters of credit to the first-lien group. It also owes about $95 million to second-lien lenders, court documents say.

The retail operation consists of 277 stores located primarily in shopping malls, along with 40 KB Toy Works stores, which are somewhat larger and located in strip malls. Additionally, KB Toys operates 114 outlet stores and 30 temporary "holiday stores," court documents say.

There is also a wholesale distribution business, Creative Innovations and Sourcing LLC, which serves retailers including CVS Caremark Corp., Supervalu Inc. and QVC Inc. The distribution operation is also going up for sale, according to court documents.

About half of the original KB Toys outlets were shuttered during the first bankruptcy case, which was also in Delaware. A Prentice affiliate bought the remaining stores for about $20 million, and said it would attempt to revive the operation. Court documents say KB Toys held up well during the first part of this year, despite tough market conditions for companies that count on free-spending consumers.

But a slight uptick in same-store sales from February to October was followed by a nearly 20% dive in sales during the crucial post-October selling season, court documents say. That left KB Toys with no alternative but to return to bankruptcy and start going-out-of-business sales.

Prentice owns nearly 90% of KB Toys, court documents show. The rest of the company is property of a trust set up to find money for creditors left unpaid from the first bankruptcy proceeding, which began in 2004.

A slice of the new company was set aside in a trust for creditors, giving them a chance at improving their recovery if the re-launched KB Toys did well.

Toy makers and other unsecured creditors were expected to receive less than 10 cents on the dollar of what they were owed, according to the Chapter 11 plan from the first bankruptcy case. KB Toys' new bankruptcy filing casts significant doubt on the value of the portion of the creditor recovery that depends on the success of the new KB Toys.

Boston private equity investor Bain Capital owned KB Toys at the time of its first bankruptcy case, and was accused by unsecured creditors of improperly draining cash from the company in a dividend recapitalization deal. Bain denied the allegations. Two lawsuits involving the recapitalization arrangement were settled and the terms were never disclosed.

However, bankruptcy court records show an unusual uptick of more than $27 million in litigation settlements coming into the coffers of the first KB Toys bankruptcy case during the last quarter of 2006. During that period, KB Toys creditors who had dropped a case filed against Bain in Massachusetts canceled a bankruptcy court motion involving the lawsuit.

The same law firms that ran the first KB Toys bankruptcy case will be running the second Chapter 11 proceeding: Wilmer Cutler Pickering Hale & Dorr and Young Conaway Stargatt & Taylor

Write to Peg Brickley at peg.brickley@dowjones.com
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I am actually surprised they were able to survive this long with the decline of malls and abundance of big box stores

[Ameskid]

See ya, KB.

[patk]

puts a Rose on kb toys :hurt:

[NJxxJon]

YOU BEAT ME TO THIS! haha our message board rocks!

Yeah, just got a 14 dollar kids skateboard for fun too from there.

[d_fife]

Originally posted by NJxxJon
YOU BEAT ME TO THIS! haha our message board rocks!

Yeah, just got a 14 dollar kids skateboard for fun too from there.

is this a surprise? TOYS R US WILL BE THE ONLY TOY CHAIN LEFT!

[Jamesway_princess]

I work for Walgreens (kill me now) & we got an e-mail from corporate, saying pull all KB gift cards off the selves. Knew something had to be going on.

[Valerie]

I just saw one of those "holiday" stores t the Holyoke Mall. I thought it was odd that thye opened a store when I knew they were not doing so well...makes sense now.

[kendra]

Oh, bummer...very sad.

I actually was shopping with my mother the other day to buy some Christmas gifts for some needy children...and we ended up picking up the toys at KMart, but had we gone to an actual toy chain, I said we ought to go to KB as I feared it was the next to go...and I see these fears have come true. It will be missed. :(

[wwefan101]

kbs  is just a store  the one nare me closed years ago

[momof3]

The KB in Newington Ct closed quite a while ago and the Plainvillle one closed up when they filed the first time, I know there was one at the Meriden Square but not sure if it is still there or not.
Too bad for KB,

[Crawford]

That's too bad. I know the Kay Bee in the Emerald mall was remodeled and actually looked pretty decent as well as competitive.  Only Toys R Us is left now.

[mikey7290]

I thought something was going on.  I just got back from the St. Lawrence Centre mall in Massena, NY.  The store there has signs that don't say "Going Out Of Business" or "Store Closing" but instead say "Entire Store On Sale" and "All Sales Final."  I thought it was just the Massena store.  That mall is unable to keep stores as it is.

[DerangedHermit]

How this place lasted so long is mind boggling. This place always looked like someone dropped a bomb on it, and a lot of the merchandise was overpriced and outdated.

[NJxxJon]

Originally posted by DerangedHermit
How this place lasted so long is mind boggling. This place always looked like someone dropped a bomb on it, and a lot of the merchandise was overpriced and outdated.

I remember when younger the dancing squirrels on the tables ......and video games behind the counter, and a barbie isle...haha. Being young was the shizzle.

[Marc82]

Originally posted by momof3
The KB in Newington Ct closed quite a while ago and the Plainvillle one closed up when they filed the first time, I know there was one at the Meriden Square but not sure if it is still there or not.
Too bad for KB,

The one at The Meriden Square was still there last time I was there over the summer. The one in Plainville closed down a few years after they filed for bankruptcy the first time. The ones in Bristol and Southington closed when they first filed. Plainville was open until 07 and is now a Sleepy's right next to another closed store Linen's & Things.

[CTAmeshopper]

KB Toys is doomed.

I don't see them making it through another year.

sad really they were booming in the early 1990s, now they're on their last legs. They're done.

[GeorgeL]

Very sad to see them go. I've been a customer and have a lot of memories since the Toy and Hobby days. Back when they had a red carpet in the mid 70s. Then they became Kay-Bee Toy and Hobby.

Both Milford and Trumbull CT stores are 30% off. This will make it official NO MORE MALL TOYSTORES except the 2nd hand scalpers (which can go jump off a bridge or get hit by a car IMO).

Nobody is to blame but themselves. They always have been overpriced and understocked. Always the last to get things. Poor leadership and management. You could tell in the mid 90s they turned into a money grubbing bunch of corporate losers.

TRU is all that is left and I am noticing they are doing everything in their power to stay alive. Lots of sales, price matching and competitive pricing.

If you have the $$$ now is the time to capitalize on this and open your own mall toystore chain. If you can match Walmart prices and deliver top notch customer service and product you will own the market. TRU has alot going for them right now but they SEVERELY lack the employee's with knowledge or commitment.

RIP Kay-Bee and I hope all you corporate scumbags responsible for its demise learn your GREEDY lesson.

[store215]

Originally posted by GeorgeL

If you have the $$$ now is the time to capitalize on this and open your own mall toystore chain. If you can match Walmart prices and deliver top notch customer service and product you will own the market. TRU has alot going for them right now but they SEVERELY lack the employee's with knowledge or commitment.

I disagree. Malls are dying, which is why nobody is opening stores in malls. Toys are also not as popular as they used to be, which is why stores like Best Buy are still doing okay (although they are starting to hurt though). And I could really care less about the employees' knowledge. If I know what I want to buy, I'm going to get it for the lowest price possible.

[GeorgeL]

I disagree. Malls are dying, which is why nobody is opening stores in malls. Toys are also not as popular as they used to be, which is why stores like Best Buy are still doing okay (although they are starting to hurt though). And I could really care less about the employees' knowledge. If I know what I want to buy, I'm going to get it for the lowest price possible.

Malls are dying. You want to know why? Stores charge too much for their product and they all LACK customer service.

I am the same as you. When I go to a toy store I know what I am looking for so I dont need anyone's help. However 9 times out 10 when I am at a toy store I over hear moms or LESS knowledgable people than us asking for help. The service they receive plain and simply sucks. No one knows the products the stores is selling and If I hear anyone use the "whatever is on the shelf" line one more time I am going to pull out their tongue and spank it.  Its a crock of $hit along with the "I'm not sure when we are getting anymore".

Service in america sucks and its 50% of the problem retail is in the dumpster.

[momof3]

I can't say I agree with the fact that store service sucks.  I can honestly say that i have for the most part received pretty good service by the employees of my local stores.  For example last night at Walmart (Marcs store in CT) I had a ? about something in electronics and the employee was very helpful.  
I also had very good service a couple of weeks ago at Kmart in the electronics and hardware dept.

[Marc82]

Originally posted by momof3
For example last night at Walmart (Marcs store in CT) I had a ? about something in electronics and the employee was very helpful.  

I was gone at 6PM last night, so you didn't get to meet me up at the Front End. (actually by time I got my cereal and paid at the Customer Serivce Counter it was about 10 after 6). I'm trying to remember everyone who works in Electronics Dept/Connection Center - Sharonda, Donna the dept manager, Mike, Justin, John, that older lady who's name I can never remember, and I'm sure I'm forgetting a few.

[momof3]

Marc, I know you had said you left by 6 or 7, we were there around 8ish  or later that night.  By electronics, I mean gaming stuff, I think his name was like Ramon or something because i needed to see a PS game and the girl their mentioned his name as having the key. He also answered my questions about the Guitar Heros for Xbox.

[kendra]

Originally posted by GeorgeL
Malls are dying. You want to know why? Stores charge too much for their product and they all LACK customer service.

While I don't disagree with your statement (though I think to suggest that they all lack customer service is a bit inaccurate, as I do encounter shops within malls here and there whose employees do exemplify quality service), I think it is also worth nothing that malls -- at least the biggest, most successful ones -- generally charge a LOT in rent. High rent, of course, lends itself to price markups, because the establishment has to make SOME profit or there is no point in being there in the first place. You can't pay people anything less than minimum wage, so the next place to go is to increase the price. With that in mind, the concept of the "mall dying" could be attributed just as much to the folks that RUN the malls to the tenants themselves.

[zonemad96]

How this place lasted so long is mind boggling. This place always looked like someone dropped a bomb on it, and a lot of the merchandise was overpriced and outdated.

i remember the kb toys near me 1 was a small store in the Westminster town mall in md the other one was a pretty big store in the shopping center right next to the mall... the 2 locations near me were RIGHT next to each other ... talk about stupid the mall location was tiny but it got alot of people the one in the shopping center was huge but didnt get alot of business makes sense right? ... not and they both werent more expensive than anywhere else but they had a pretty big selection of cool stuff not as big as toys r us obviously but it was a nice store i was really sad to see them go

the mall location was trash i only went in it because i was in the mall if i wasn't in the mall i would go to the other location because of how much nicer it was the mall location i have very little memory of it but the other location i can rember it all in the middle was the checkout/service desk to the right was the board games and electronic handhelds and stuff and to the left was the toys and clearance and their was all kinds of cool things ... of course i was young do every thing seemed more awesome to me than im sure it was