Child World - Downfall

Downfall

While the focus of Child World's management was primarily on growing the brand, a recession that began in 1990 and continued into 1991, combined with the lack of a 'must-have' toy (e.g., Cabbage Patch Kids), helped to send Child World into a steady decline.

Peter Hayes and a large portion of Child World's executive board were fired in 1990 and Cole National began to restrict capital to the stores. As a result, Child World was unable to procure their needed merchandise for the upcoming holiday season and sales dropped. The combination of cash restriction and lack of sales caused Child World to default on payments to creditors and suppliers. These companies, such as LEGO, responded by refusing to accept orders for merchandise and Child World was not only unable to spend money, but store shelves were also becoming empty due to the suppliers' unwillingness to do business with the chain. Child World suffered a yearly loss of $192 million (US) on $830 million in sales for fiscal year 1990. Its profile was not helped by Toys "R" Us's continued growth, as well as the chain's being named a co-defendant in a lawsuit filed by the Consumer Products Safety Commission.

Cole National decided to seek a buyer for their ailing toy store but a $157 million (US) dollar deal fell through when the buyer failed to come up with enough capital. Meanwhile, Child World was continuing to lose money at a rapid pace and without any monetary interest from potential buyers Cole National was forced to find another way. This resulted in a debt trade with another venture capital firm, Avon Investment Limited Partnership, in 1991. In the deal Cole National gave Avon $30 million in short-term debt in exchange for a larger amount of long-term debt and the remainder of the short term debt. Avon installed a group of former Toys "R" Us executives who sought to bring the company back to prominence.

The already precarious situation, however, did not improve entering 1992 and store closures began. Child World closed 26 stores and exited certain markets altogether in January, then was forced into bankruptcy in April after its line of credit was not renewed. On May 7, 1992, in addition to making the bankruptcy filing public, Child World announced that 54 more stores would be closing. This left Child World with less than half of the stores they had at the end of 1991, and the financial situation was further compromised after company executives failed to secure a line of credit that would have ensured the stores would remain open until at least January 1994.

Child World's management then approached Lionel Kiddie City, another bankrupt toy store chain, about a merger that Child World declared would be its only chance for survival. The chain set a deadline of July 12, 1992, to complete the merger. Eleven days before the deadline Child World announced a chain-wide inventory clearance sale in order to raise cash. July 12 came and passed with no merger announcement, and Child World announced the inventory clearance sale was now a full-fledged going out of business sale. Despite this, merger talks continued in the hopes that Child World and Lionel Kiddie City might be able to pull off a last-minute deal. Unfortunately for Child World, the deal ultimately failed and on August 3, 1992, the chain announced that the remaining 71 stores would accelerate their liquidation sales and close as soon as possible; this occurred over a period of two to six weeks. (Lionel Kiddie City would meet the same fate as Child World, going out of business in 1993.)