Toys 'R' Us CEO sees future with smaller shops

By Jessica DiNapoli

NEW YORK, Sept 20 (Reuters) - Toys "R" Us Inc will shrink its stores and revamp its bigger outlets through its bankruptcy process, which may end with the company's return to the public markets, Chief Executive David Brandon said on Wednesday.

Toys "R" Us, the largest specialty U.S. toy seller, filed for bankruptcy on Monday after some of its vendors stopped shipping to them. They were concerned the company would not pay them because of its financial distress, but those worries were put to rest once Toys "R" Us secured bankruptcy financing on Tuesday.

Brandon, in detailing Toys "R" Us' turnaround, dubbed "Project Sunrise" by the company, said the chain will integrate its online and in-store shopping experiences, adding faster shipping and better technology and customer service. He said the chain's 64,000 workers would see wage increases too.

Brandon described the plans at Toys "R" Us' pop-up store in Times Square, a temporary space decorated with New York City-style subway logos and featuring an associate dressed up as the store's giraffe mascot, Geoffrey.

"I'm getting ideas for Christmas," said shopper Katie Reed of Jackson, New Jersey, adding that she was surprised the retailer filed for bankruptcy. "The selection at Walmart and Target is not as big."

But the space pales in comparison to Toys "R" Us' former Times Square location, which offered shoppers a Ferris wheel and roaring T-rex. The retailer hopes to return to its more experiential roots after it slashes its $5.2 billion debt pile and frees up cash through the bankruptcy process.

Private equity firms Bain Capital and KKR & Co LP and real estate investor Vornado Realty Trust now own the toy seller, but the retailer will have new owners once it emerges, Brandon said.

The company could exit bankruptcy through a public offering of its shares or by a traditional reorganization in which creditors convert their debt to equity, he said. He did not rule out a sale, explaining that the company and its creditors had not yet made any decisions.

Toys "R" Us withdrew its plans to go public about four years ago. Before its $6.6 billion buyout in 2005, the chain had been publicly traded.

The chain's older suburban big-box shops will also be overhauled to give kids a chance to try out toys in the store.

"[We want] toys out of the box and into the hands of kids," Brandon said. "We know we need to do it. We haven't had the capital to do it."

The older shops need new floor and lighting patterns and furniture to accommodate more play zones such as target ranges for Nerf, a line of foam projectile toys. Toys "R" Us already offers some activities, such as birthday parties, at its stores.

The company does not plan to close a "disproportionate" number of its more than 1,600 stores across the country and aims to add smaller shops in urban areas including Washington, D.C., Boston and Detroit, Brandon said. But stores that lose money could be at risk of closing, he said.

Retailers have several months to figure out whether to keep or reject leases in bankruptcy.

Toys "R" Us will also offer shoppers more stores that combine its flagship brand for kids of all ages with the infant- and toddler-focused Babies "R" Us, Brandon said. (Reporting by Jessica DiNapoli; Editing by Cynthia Osterman)