Child World is grounded: rescue by Lionel falters - Lionel Kiddie City

Discount Store News, August 3, 1992 by Laura Liebeck

AVON, Mass. -- The fat lady sang at Child World.

The No. 3 toy specialty chain, which posted 1991 sales of $580 million, is weeks away from closing its doors forever.

The beleaguered chain, operating under Chapter 11 protection since April, is expected to complete its going-out-of-business sale later this month.

The possibility of an eleventh-hour rescue by another troubled toy chain, Lionel Kiddie City, is highly unlikely, trade sources say. Lionel, the No. 4 toy specialty chain, has in recent months been trying to secure sufficient financing to acquire Child World, but as of mid-July no money had been forthcoming.

Lionel officials did not return calls for more information on their interest in Child World.

Child World executives had hoped that a merger with Lionel, also in Chapter 11, could save the ailing toy chain.

Child World fell victim to a host of financial troubles in recent years that led to its demise: a disenchanted former owner that for two years focused much attention on trying to sell the chain, cash-starving the stores until a buyer was finally secured last July, and a relentless national recession that is still claiming victims.

In recent months, Child World attempted to secure additional equity investors to satisfy its bank group's demand for more financial support after its $100 million revolving line of credit expired on Feb. 29. But an investor could not be found and Child World was forced to file a Chapter 11 bankruptcy petition in April.

Prior to the filing, Child World had been working to shore up its balance sheet by eliminating unprofitable stores and closing distribution centers, leaving it with just 71 core stores mostly in the Northeast. Two years ago, Child World operated 182 units across the United States.

In June, Ron Tuchman, the company's chief operating officer, resigned "to pursue other business interests," said a company spokesman. Headquarters staff has been dramatically pared and now includes no more than 75 people. The merchandising staff is gone.

The official going-out-of-business sale began on July 12, three weeks after Child World received bankruptcy court approval to liquidate if the merger with Lionel failed. The GOB sale, is expected to last six to eight weeks, a company spokesman said.

Child World first started marking down merchandise by 10% on July 1 in what the chain called a "clearance sale," but what actually was the beginning of the liquidation process, another company spokesman said.

Child World's demise has been a long, slow slide.

Acquired by Avon Investors Limited Partnership, an entity created by the Thomas H. Lee Co., last July, Child World had tried to bolster its weak position in the market with new prototype stores, advertising campaigns and a thinning of its store base to just the best performing units. Prior to the acquisition and after it, Child World periodically stopped paying bills and held dramatic sales in an effort to build cash reserves.

But even with the guidance of new top executives, Tuchman and chairman John Devine, both formerly of Toys "R" Us, Child World could not pull itself together.

Under Child World's former owner, CNC Holdings, the chain was financially weakened during the two years it took to sell the chain. It also had a number of chief executives with different ideas on how to run the chain.

When Child World was sold by CNC Holdings to Avon the deal was structured largely as a debt swap with CNC Holdings and a restructuring of the toy chain's trade and bank debt with a comprehensive repayment schedule to those sources.

As of Dec. 16, 1991, Child World had paid $90 million of its old debt which equaled half of what was owed under the terms of the restructuring agreement. The balance was scheduled to be paid out over a five-year period with the next payment due in January 1993.

It is unclear how much more of their money creditors will now receive from Child World. Toy, apparel, stationery, and consumer electronics suppliers are already dealing with payment schedules for a number of other retailers in Chapter 11 including Lionel, Hills and Ames.

The toy industry may long feel the effects of Child World's passing. Child World's demise leaves the specialty toy business greatly streamlined. In the last two years, the industry has lost five chains: K&K Toys and Circus World were acquired by Kay-Bee; Karl's Toys and Tons of Toys merged; Toy King and Toy & Sports Warehouse liquidated.

The toy specialty business is still led by Toys "R" Us, with 1991 sales of $4.5 billion for its U.S. toy stores; Kay-Bee, $1.018 billion; and Lionel, $309 million.