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The Honolulu Advertiser
Posted on: Friday, December 12, 2008

A MERRY CHRISTMAS THIS IS NOT
KB Toys going out of business after filing Ch. 11

By Mae Anderson
Associated Press

Hawaii news photo - The Honolulu Advertiser

KB Toys at Queen Kaahumanu Center in Kahului, Maui, has a short shelf life after the chain filed for bankruptcy protection and plans going-out-of-business sales.

CHRISTIE WILSON | The Honolulu Advertiser

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NEW YORK — In another sign of the grim holiday season, KB Toys filed for bankruptcy protection for the second time in four years yesterday and plans to begin going-out-of business sales at its stores.

The 86-year-old company said in a filing that its debt is "directly attributable to a sudden and sharp decline in consumer sales" because of the poor economy.

A manager at KB Toys in the Windward Mall declined to comment on the timing of any liquidation sales and referred all inquiries to the company's headquarters in Pittfield, Mass. In addition to the Windward Mall location, KB Toys also has Hawai'i stores in Kahala Mall, the Queen Ka'ahumanu Center in Kahului, Maui, and the Prince Kuhio Plaza in Hilo. Earlier this year, KB closed its stores at Ala Moana Center, Pearlridge Center and Kamehameha Shopping Center.

That a toy retailer filed for bankruptcy just before Christmas shows how bleak things have become, since such stores make up to half of their sales during the holidays. But analysts expect toy sales this holiday season to be flat or down slightly from last year's total of $10.4 billion, according to market research firm NPD Group, because consumers are cutting back amid the recession.

In response, toy retailers, including KB Toys, amped up their discounts.

KB Toys had aggressively cut prices to entice cash-strapped shoppers, offering hundreds of toys for $10 or less. It also expanded its value program, which offers deals on new items each week, and offered "Buy 2, Get 1 Free" promotions.

But the deals weren't enough. In the filing in U.S. Bankruptcy Court in Delaware, KB Toys said that between Oct. 5 and Dec. 8 sales in stores open at least one year, a key retail metric known as same-store sales fell nearly 20 percent.

The company said it considered its alternatives and decided the most viable way to cover its debt was to begin liquidating its stores via immediate going-out-of-business sales. KB Toys also plans to sell its wholesale distribution business, according to the filing.

Filing for Chapter 11 protection rather than Chapter 7 liquidation allows a company to retain more control over selling off assets. Under Chapter 7, the court immediately appoints a trustee to take over the case.

KB Toys declined to comment beyond what was in the filing.

The company operates 277 mall-based stores, 40 KB Toy Works stores which are mainly in strip malls, 114 outlet stores and 30 short-term holiday stores. It has 4,400 full-time employees and 6,515 seasonal employees.

KB Toys, which says it has about $480 million in annual sales, said in the filing that it had debts between $100 million and $500 million and total assets in the same range.

Vendors top the list of unsecured creditors. The toy retailer owes Hong Kong-based toy manufacturer Li & Fung about $27.2 million, El Segundo, Calif.-based Mattel Toys $1.3 million and St. Louis-based Energizer Battery more than $728,000. Other creditors are Hasbro Inc. and the maker of Legos.

Pittsfield, Mass.-based KB Toys filed for bankruptcy in 2004 and emerged nearly two years later as a subsidiary of investment firm Prentice Capital Management, which owns 90 percent of the company's common stock. During that bankruptcy, KB sold its retail Internet operation to eToys Direct Inc., cut the number of retail stores from 1,200 to 650 and closed a distribution center.

Jim Silver, a toy analyst at www.timetoplaymag.com, said KB had been struggling since emerging from its first bankruptcy protection in 2005.