From a Washington Post column by Megan McArdle:

For anyone who grew up in the ’70s or ’80s, Toys R Us was a sort of a magic kingdom, like a candy store in its powers to enchant. So many aisles of delightful things to play with. You could wander there for hours, and many of us did just that.

Alas, some magic is going out of the world. The venerable retailer, already in bankruptcy, is expected to tell the court as soon as Monday that it can’t figure out a way to reorganize as a going concern and must therefore begin the process of an orderly liquidation. Which in finance-speak means shutting down stores, selling off everything that can be sold and handing the proceeds over to creditors.

… Toys aren’t exactly buggy whips — there’s still a market for them (about $20.7 billion worth of sales in 2017). And Toys R Us seems to command a healthy slice of that market. So why can’t it be saved?

Good question. It turns out that, as with many failures, the answer is a combination of “bad planning” and “bad luck.” …

We like to tell ourselves morality plays about failure. Someone is either a victim or a villain, and which is which varies by, among other things, ideology. During the financial crisis, for example, you got two starkly different accounts of the people who got caught short by the housing bubble; conservatives saw them as gamblers who deserved what they got, while liberals thought they must have been rooked by Wall Street.

… You’ll see this pattern repeated over and over if you look at failures, from major disasters to corporate collapses: They start with people taking risks that others (or they themselves) had taken before. Only this time, something goes wrong, and that little risk turns into a big problem.

And so with Toys R Us. A leveraged buyout significantly increases a company’s risk, because larding the company up with a lot of debt divides its finances into a stark binary: Either it has enough to make its debt payments as they fall due, or it doesn’t. If it’s on the wrong side of that divide, bankruptcy quickly looms.

But Safeway and Hilton, to name just two companies, are still going strong despite having gone through an LBO. And at the time, Toys R Us must have seemed like a pretty reasonable bet. …

They couldn’t have foreseen that within three years, the country would be in the throes of the worst financial crisis in generations, that the stock market would crash, incomes would stagnate and, worst of all, people would put off having children. Nor could they have predicted, in 2005, that Amazon would come to be as dominant as it did. Or the internet more generally — online distribution of video games, for example, has devastated a once-lucrative bricks-and-mortar business.

It seems clear that if it hadn’t been for the LBO, Toys R Us would still be around (for a while, anyway). But that might well be true if only it had done that deal just a little bit earlier — early enough to let it pay down some of that debt. As the Bible says, “time and chance happen to us all.” It’s just that when you take a lot of risk, they tend to happen faster and harder.