Greater than the sum of its parts: Toys R Us on Black Friday. Photo: Andrew Burton/Getty

Six months after filing for bankruptcy, Toys R Us said today that it will close all its U.S. stores and 100 in the UK, writes the Washington Post's Abha Bhattarai.

Why it matters: The Amazon effect is one reason for the iconic chain's misery. But the other is the $6.6 billion in debt that Vornado, Bain Capital and KKR laid on Toys R Us after a leveraged buyout in 2005, some $5.2 billion of which remains.

In an email, Thomas Paulson of Inflection Capital weighed in on Toys R Us and the general malaise of the retail industry:

"The culpability for the probable Toys-R-US closure and the broader retail apocalypse lies partly with U.S. pension funds and their retirees."
"Starting in the early 2000s, pension funds aggressively shifted their asset allocation from public to private equity, partly in order to enhance returns. The volume added up to hundreds of billions of dollars per year. This included a shift into retail chains, whose valuations were relatively low due to skepticism about their business model. The view was that their business problems were fixable."
"But significant turmoil started in 2007. It stemmed largely from demographic change, competition from Amazon, and too much capacity. At once, the sector needed to invest more, adapt, and slim down. But its private equity owners had made Toys-R-Us and other retailers so indebted that they couldn't invest and adapt. A cascade set in — they lost material market share. Profits and cash flow collapsed, and bankruptcy ensued."
"Toys-R-Us reflects a larger reality: The retail fallout has disproportionately fallen on private equity-owned retail — more than a third of the stores closed and estimated jobs lost in 2016 and 2017 were by retailers owned by private equity and pension funds."
"Had these chains remained in the public markets, it would have been humiliating to reset the business model and witness the collapse of their market value. But many would have likely survived."

This post has been updated.

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