By Tracy Rucinski
(Reuters) - Bankrupt Toys 'R' Us Inc is preparing to sell or close all 885 stores in its U.S. chain, risking up to 33,000 jobs, after failing to reach a deal to restructure billions of dollars in debt, a person familiar with the matter said on Wednesday.
With shoppers flocking to online platforms like Amazon.com Inc <AMZN.O> and children choosing electronic gadgets over toys, Toys 'R' Us has struggled to service debt from a $6.6 billion leveraged buyout by private equity firms KKR & Co LP <KKR.N> and Bain Capital and real estate investor Vornado Realty Trust <VNO.N> in 2005.
Toys 'R' Us had been closing one-fifth of its U.S. stores as part of efforts to emerge from one of the largest ever bankruptcies by a specialty retailer.
But creditors decided they can get more from liquidating assets of the toy seller, the largest in the United States and one of the best known in the world, rather than finding a way to keep the business alive, the person said, speaking on condition of anonymity to discuss the private negotiations.
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A Toys 'R' Us spokeswoman declined to comment.
The company is expected to make a filing with the bankruptcy court late on Wednesday, the person said.
The planned closure in coming months is a blow to generations of consumers and hundreds of toy makers that sold products at the chain, including Barbie maker Mattel Inc <MAT.O>, board game company Hasbro Inc <HAS.O> and other large vendors such as Lego.
In Britain, the remaining 75 Toys 'R' Us shops will close within six weeks, joint administrators for the retailer said earlier on Wednesday, after they were unable to find a buyer for all or part of the business, resulting in the loss of about 3,000 jobs.
The Wall Street Journal earlier on Wednesday reported that Toys 'R' Us Chief Executive David Brandon told U.S. staff about the likely closures on a conference call.
Efforts to restructure collapsed this month after lenders decided, absent a clear reorganization plan, they could recover more by closing stores and raising money from merchandise sales, sources with knowledge of the matter said.
"It's a relentlessly difficult retail environment for mall-based retailers. There just aren't the same feet coming through the doors," said Brian Davidoff, a financial restructuring lawyer.
More than 8,000 U.S. retail stores closed in 2017, roughly double the average annual store closures in the previous decade, according to data from the International Council of Shopping Centers.
Toys 'R' Us is also likely to liquidate in France, Spain, Poland and Australia, Brandon said, according to The Wall Street Journal. It quoted Brandon as adding that the retailer also planned to sell operations in Canada, Central Europe and Asia.
Toys 'R' Us was already working with liquidators Tiger Capital Group LLC, Great American Group LLC, Hilco Merchant Resources LLC and Gordon Brothers Retail Partners LLC on previously announced store closures, and the four are expected to continue with the additional closings, sources said.
The future of the retailer's big-box shops, many located in strip centers, was uncertain.
The disappearance of Toys 'R' Us in the United States and the UK leaves a void for hundreds of toy makers that relied on the chain as a top customer alongside WalMart Inc <WMT.N> and Target Corp <TGT.N>.
Shares in Mattel, the world's largest toymaker, and No. 2 U.S. toymaker Hasbro tumbled last week on liquidation reports. Both companies rely on Toys 'R' Us for roughly 10 percent of their revenues, according to their 2016 annual reports.
The liquidation will be more painful for small, independent toy makers that relied on the chain as a major showcase, said Lutz Muller, president of consultancy Klosters Trading Corp.
"A large number will go to the wall," Muller said.
(Reporting by Tracy Rucinski in Chicago; Additional reporting by Ismail Shakil and Sangameswaran S in Bengaluru; Editing by Peter Henderson, Richard Chang and Leslie Adler)