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KB Toys files for bankruptcy, intends to begin store-closing sales

December 11, 2008 | 12:28 pm

Kbtoys_2KB Toys, which has more than 40 stores in California, today filed for Chapter 11 bankruptcy protection and said it intended to begin going-out-of-business sales. That's bad news for the company's employees but could be good news for parents who haven't yet done their Christmas shopping for the tots.

If you are holding cards or gift certificates, you might get to a store today to try to use them.

A toy retailer filing for bankruptcy just before Christmas shows what terrible shape the economy is in. Most retailers, especially toy stores, try to hold on through the holidays, which can account for up to half of their annual sales. Analysts expect toy sales this year to slide with the rest of retailing. Last year, Americans spent about $10.4 billion on toys, according to market research firm NPD Group.

In the company's court filing, Vice President and Controller Raymond Borst told the judge that "time is of the essence to commence the store closing sales."

"In order to maximize value of the assets through the store closing sales, it is imperative [KB] be authorized to conduct the store closing sale ... as soon as possible in order to take advantage last two weeks of the holiday selling season," he wrote.

We've got a reporter en route to a store to see if the discounts have begun yet.

The bankruptcy filing comes just more than three years after KB emerged from an earlier Chapter 11 bankruptcy case. KB said in its bankruptcy filing today that "a series of market forces have triggered a rapid decline in retail sales" during its "critical selling season."

Between February and early October, KB said it had essentially flat sales compared with 2007. But since then, same-store sales have fallen 19.77% compared with last year, KB said in its court filing.

The privately held Massachusetts company, which claims to be the nation’s largest mall-based toy retailer, says it has annual sales of about $480 million, which places it far behind goliaths such as Wal-Mart and Toys R Us. The company has 277 mall-based stores, 114 KB Toys Outlet stores and about 40 KB Toy Works, which are mainly in strip malls. It also has about 30 temporary holiday stores.

KB employs about 4,400 people from January through September, but ramps up staffing for the Christmas season. As of Friday, it had nearly 11,000 employees, of which 6,500 are temporary workers.

The Associated Press said KB Toys had aggressively cut prices to entice cash-strapped shoppers, offering hundreds of toys for $10 or less. It also expanded its value program, which offers deals on new items each week, to include video games and DVD movies.

-- Julie Makinen and Jerry Hirsch

Photo: Stacy Varguez arranges toy trains on a track at KB Toys in the Glendale Galleria last month. Credit: Brian Vander Brug / Los Angeles Times