Iconic toy store brand closes stores, faces bankruptcy sale

Operating a standalone toy store, even a large chain, comes with major challenges.

Having spent two years as the general manager of Time Machine Hobby, one of the largest, if not the largest, independent toy store in the United States, I faced those challenges daily.

The biggest issue is that Walmart and Target can sell toys at a lower margin as a way to entice people into their stores. In addition, their size, which dwarfs even the largest pure toy retailers, allows them to buy at lower prices than toy-only stores.

At Time Machine, we fought those advantages with top-tier service, regular on-site play for various collectible card and miniature games, and offering differentiated products when possible.

The former U.S. version of Toys R Us, which was liquidated after a 2017 bankruptcy, could not make needed pivots like these because a leveraged buyout sucked up all its cash.

ALSO READ: Leveraged Buyouts and the Downfall of Toys R Us

Now, after a comeback for the brand under a variety of owners, the Canadian operator of the Toys R Us brand has entered that country’s equivalent of Chapter 11 bankruptcy and its future remains in serious doubt. (The chain, it should be noted, no longer has any connection to the original U.S. company or the U.S. company using that name now).

Toys R Us Canada faces uncertain future

Toys R Us Canada has sought creditor protection under the Companies’ Creditors Arrangement Act. The company is evaluating strategic alternatives and undergoing restructuring initiatives, including closing stores, according to a Feb. 3 court filing. 

The filing works a lot like an American Chapter 11 bankruptcy filing.

In the court documents, the company explained its current operations and the market conditions it faces.

“The Applicant has 22 store locations located in Canada. These stores, and the hundreds of employees who support them, continue to serve customers nationwide. However, persistent inflation, rising labour and occupancy costs, post-pandemic supply chain disruptions, and a structural shift toward e-commerce have materially weakened the performance of traditional bricks and mortar retailers,” the company shared.

And, while it carries the familiar name, this chain is not a licensing deal.

“Toys R Us, Babies R Us and HMV Canada are 100% owned and operated by an independent, proudly Canadian company — and have been since 2018,” the company shared on its website.

Toys R Us Canada closes more stores

The Toys R Us website notes that the chain has shut down the sales part of its online operations. It also notes that it has stopped taking gift cards.

In addition to those changes, the company shared some moves it will make as part of the bankruptcy-like process.

“The Applicant has taken aggressive steps to reduce expenses, improve margins, and right size its retail footprint, including head office reductions, workforce optimization, closing of unprofitable stores, supplier negotiations, and the introduction of new revenue generating concepts,” Toys R Us Canada shared in its court filings.

Toys R Us Canada owes $120 million to vendors and “substantial amounts” to its landlords, according to Retail Dive.  

Now, it has plans to close some locations and put the remainder of the chain up for sale.

“In new court documents, the chain says it’s notified the landlords at the St. Laurent Centre in Ottawa and Woodgate Plaza in St. John’s, Nfld. that its stores there will soon close,” Toronto’s City News reported.

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The filings show Toys “R” Us Canada will hand back both of those properties to landlords. It has already closed to two more locations at the Niagara Pen Centre in Ontario and in Vaudreuil Dorion, Que.

“A judge gave the company permission last month to conduct liquidation sales at some of its remaining 22 stores. In the two years leading up to its creditor protection application, it closed 53 stores across Canada,” according to Coastal Reporter.

According to Alvarez & Marsal Canada Inc., appointed as Monitor of the business, Toys “R” Us Canada “has experienced a significant decline in revenue in recent years, primarily attributable to increased competition from online and big-box retailers and a broader reduction in consumer demand.”

The Monitor’s report highlights that creditor protection under the CCAA was necessary to address these challenges and restructure the business while continuing operations. Details about the case can be found on the Monitor’s website, listed here.

Toys R Us Canada closures & potential bankruptcyCreditor protection filing: Toys “R” Us Canada has filed under Canada’s Companies’ Creditors Arrangement Act (CCAA), similar to Chapter 11 in the U.S., allowing the company to restructure, according to Retail Dive.Court approval: The Ontario Superior Court granted a stay of proceedings, appointed a monitor (Alvarez & Marsal Canada Inc.), and allowed interim financing, reported Insolvency Insider.Past closures: More than 50 stores closed in the past two years; at least 38 shut down in 2025 alone, with 12 listed for sale, according to HCAMag and Retail Insider.Financial pressure: The company owes $120 million to vendors and faces multiple lawsuits from landlords and suppliers, according to Winnipeg City News.Market pressures: The retailer faced competition from Walmart, Amazon, and other mass merchants, as well as consumers shifting to online shopping, added HCAMag.

Related: 78-year-old furniture chain closing all stores and liquidating

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