Toys “R” Us Canada says it has filed for creditor protection as it seeks to restructure its struggling business.
The toy retailer said in a press release that it is evaluating “strategic alternatives” and will implement restructuring measures, including “reducing its retail footprint, to better position the Company in today’s retail environment.”
While its 22 stores remain open for now, Toys “R” Us says it may reduce the number of locations it operates in the future, putting about 654 Canadian full- and part-time employees at risk.
The company has more than $36 million outstanding in gift card obligations and says it will honour the cards for only 14 days, starting on the date it filed for creditor protection.
Toronto court records show a growing number of parties, including landlords and suppliers, have filed more than 20 lawsuits against the Canadian chain over property, mortgage, contract and debt disagreements during the past two years. The claims, which amount to millions of dollars, have not been tested in court.
Toys “R” Us Canada is the only surviving branch of the retailer, and has continued to operate since its former U.S. parent company filed for Chapter 11 bankruptcy and closed its American stores in 2018.
During a previous creditor protection process, Fairfax Financial Holdings acquired the company for roughly $300 million. After facing ongoing operational challenges, Fairfax sold the business to Putman Investments in 2021.
The Canadian retailer has since struggled to regain its footing, citing lingering effects from the COVID-19 pandemic, rising inflation, higher labour costs, supply chain challenges and a challenging structural shift toward e-commerce.
Despite recent layoffs, supplier negotiations, and the closure of 50 stores in the year leading up to fiscal 2026, these measures failed to offset the continued decline in sales, according to a court document.
Toys “R” Us Canada now owes over $120 million to suppliers and landlords across the country. In the 10 months ending November 2025, the retailer posted a net loss of roughly $170 million, surpassing the $55-million loss recorded in 2024.
“Without immediate relief, the business is at risk of abrupt cessation, which would materially reduce recoveries for all creditor groups,” the company said in the court document.
Toys “R” Us is expected to return to court to apply for a liquidation sale of its inventory, furniture, and fixtures, as well as a structured sale and investment solicitation process to find a last-minute buyer for the company’s business.
Customers have not been able to make online purchases through the toy company’s Canadian website since January because of “website improvements,” according to a notice on its site.
Prior to filing for creditor protection, an increasing number of lawsuits launched against Toys “R” Us had already raised concerns among retail analysts that the company was in financial distress.
Last month, the real estate firm RioCan Holdings sued Toys “R” Us Canada for allegedly failing to pay rent on its lease at the Lawrence Allen Centre, prompting RioCan to terminate its lease on Jan. 20.
Court records show that six toy suppliers, including Spin Master, maker of Melissa & Doug and Hatchimals, Huffy Corp., Dynacraft BSC, Baby Einstein and Gerber distributor Kidcentral Supply, have filed lawsuits against Toys “R” Us Canada over the past year, seeking more than $4 million for allegedly unpaid merchandise.
“This is an organization which doesn’t have enough to operate,” said Timothy Dunn, an insolvency lawyer and partner at Blaney McMurtry LLP. “The fact that they’re not paying stakeholders, who are critical to the continuous success of their business, is a good indicator that they are tight on funds.”
Bruce Winder, a retail analyst and former toy buyer, said the toy industry has been rapidly changing since the 1980s. When the company emerged, it flourished as a “category killer,” beating out department stores in sales. But after discount stores such as Walmart and e-commerce sites such as Amazon entered the market, Toys “R” Us struggled to compete.
Vancouver-based retail strategist David Ian Gray said that Toys “R” Us is facing a “perfect storm” of pressures, including the rise of online one-stop shops, big-box grocers and Walmart expanding their toy offerings, brands selling directly to consumers, and children spending more time on digital platforms instead of traditional toys.
“The Toys “R” Us concept was built to thrive in a different era,” Gray said, “and that day has passed, and it hasn’t really changed.”
