This summer, toy supplier Product Launchers delivered 100,000 specially ordered DC Comics fidget spinners to Toys ‘R’ Us, unaware that the biggest U.S. toy store chain was in financial trouble.
Now Product Launchers, which supplies other novelty items like squishies from five toymakers to Toy ‘R’ Us, expects it will not be paid for the $500,000 fidget spinner order and other items following the chain’s Chapter 11 bankruptcy filing on Sept. 19, Product Launchers Chief Executive Linda Parry Murphy told Reuters.
“These toymakers were very reliant on Toys ‘R’ Us. It’s their primary account, or the account that they were leaning on to make inroads in the toy industry, looking at the long term down the road,” Parry Murphy said.
“But we’ve made a decision not to sell to Toys moving forward.”
Meanwhile Barbie maker Mattel Inc (MAT.O), toy and board game company Hasbro Inc (HAS.O) and other large vendors like Lego could get full payment after Toys ‘R’ Us asked a bankruptcy judge to approve $325 million of special financing to pay top suppliers owed before the Chapter 11 filing.
The unequal vendor treatment is not unusual in a Chapter 11 bankruptcy, but it shows the tough decisions vendors face when retailers file for bankruptcy, as dozens have in recent years, succumbing to competition on price and convenience from Amazon.com Inc (AMZN.O).
The beneficiaries of the financing package are still unknown, but smaller vendors like Product Launchers do not expect to make the list. Its claim tops $1 million but the amount is well below the $2.5 million to $135 million listed as Toys ‘R’ Us’ 50 largest claims.
Toy ‘R’ Us declined to comment on specifics about its relationship with Product Launchers or its other vendors.
She said the company will rely on $2 billion in new financing to fund operations.
Hundreds of vendors have faced similar concerns in their dealings with bankrupt retailers such as Sports Authority and hhgregg, which ended up going out of business. Toys ‘R’ Us is an extraordinary case, retail consultants said, because of the large number of toy vendors it relies on to fill its big-box stores.
Typically in bankruptcy proceedings, even small vendors like Product Launchers can expect to receive payment for orders made after a bankruptcy filing, but not for past-due bills. As a result, Product Launchers is ending ties with the toy chain.
“We’ve taken down all connections to them,” said Parry Murphy. “I would rather focus on retailers that have strong financials and that we have a good comfort level about doing long-term business with.”
At this point, she thinks Toys ‘R’ Us is too far behind the curve to catch up with deep-pocketed competitors like Amazon and Wal-Mart Stores Inc (WMT.N).