We’ve been the owners of Toy Joy for the past 5 years, and the management team for the past 7. A lot has happened, and we’ve been asked to share our story. No names, just an account of our
There is a TL;DR at the bottom for you lazy lurkers. I know this is a long read.
My husband and I started working at Toy Joy in 2006. My first holiday season, I worked 55 hours a week. We LOVED it. The colors, the excited customers, the smell of plastic. We started at $7.50 an hour, but we didn’t care. And we were good at it. Within 1 year, we had both been promoted up to store managers, and learned a lot of amazing things about my favorite store. I was selecting the toys to put in the store, and building displays, and making the signs. Some things were odd – the owners only showed up every month or so – but it was our first experience working at a small business right out of college. We were happy being a part of Toy Joy.
In 2007, the owners approached us with the suggestion that we purchase the store. We were shocked, and concerned. We couldn’t imagine our beloved store going away. We wanted it to be there forever, an icon to wonderfully weird Austin. My husband talked me into considering it. That was all it took. Once you start putting work into getting an SBA loan, you don’t want to give up. Our families saw that we were good at our jobs and supported us. We had no idea what we were getting them into.
Hindsight is 20/20. We were moving forward on the loan paperwork, but things kept coming up. The sellers wanted a certain price for the business, and it was our job to make sure it happened. 30 year-old me laughs, but when the 3rd-party appraisal for the business came in low, I emailed them for a 2nd (higher) evaluation. Old inventory in various warehouses was written into a $50,000 note to increase the purchase price. A failing cafe was rolled into the purchase to also increase the cost. We loved the business so much, and we saw good numbers that we thought we could improve on. In 2007 the numbers worked, even with a sudden increase to the seller’s interest rate.
We signed the loan papers in October 2008, just as news of the recession was hitting. We heard the beginnings of the news, and almost thought the bank would pull the loan. We went right to work. Learning even more about the business, and how to run it. We eliminated costs when possible, and installed a POS system to finally track inventory. We also tried to improve the business. We started recycling at Toy Joy for the first time, and removed the strange mobile home storage from the parking lot. The sales came in and they were great – we made $150,000 in profit. All of which went to the bank as a loan payment. Year 1 was over, and we were already worried.
The next 3 years were spent trying to solve Toy Joy’s liquidity problem. The business made money, but only in the last 3 months of the year, when the holiday shoppers came in. No one could give us the financial support to keep the inventory in the first 9 months, despite the business being profitable at this point. We had to start lowering the inventory level to handle the cashflow. Lots of projects to get more business were started, in which we learned the truth of the old adage “it takes money to make money.” Webstores, custom toys, toy subscriptions, all with varying levels of success, and investors that never seemed to pan out.
Meanwhile, the business was starting to falter. As new owners, we don’t deny our mistakes: we spent too much money on employee salaries, over-staffing the store, and didn’t catch it fast enough.
Additionally, our sales traffic was decreasing. When we asked customers why they came in less, they complained about the location: “I can’t park here,” “the traffic is too crazy,” “I avoid the campus area now.” At the same time, the rent was increasing despite our protests, and the neighborhood was becoming more expensive to do business in. We were spending thousands of dollars on a custom paint job that was being tagged with spray paint on a weekly basis, and that was just the beginning of the maintenance costs.
After the winter of 2012, we realized we would need to close in 6 months or move, so we started to look. We didn’t want to give up our baby without a fight; maybe there was a place for us? The perfect new location ended up being less than half the operating cost of the 29th Street location, and in the middle of downtown Austin. We saw it as a chance for Toy Joy to claim its birthright as Austin’s weirdest toy store. We moved quickly in an attempt to get the business profitable again.
At this point, we were down to a skeleton crew at the new Toy Joy. Luckily, most of our lovely staff had moved on to new, more stable jobs of their own accord. My husband and I started working 7 days a week in June 2013. It was the only way to keep the business going. We hated it when we were sore at home, but we forgot about it when we were at the store. Our customers were happy, and that made us happy.
At this point, the bank was getting worried. We had paid them faithfully for many years, but we had not anticipated properly how expensive the move would be. There were no profits coming in to pay the bank with. Our operating costs were very reduced, but there was no money left to advertise our new location. Many Austinites assumed we had closed. Others thought we were selling out by moving downtown, even those who had neglected the former location.
Money came in from various sources, trying to inject the business for long enough to get through the holiday. Much of the profit went to paying vendors and creditors, without any new stock to properly fill the shelves. We were also starting to wear down from the lack of rest. Just as we were starting to regrow the business in the new location, the bank decided to play hardball. They wanted their money now. We asked for time, and consulted lawyers. All the profit from 2013 ended up going to legal fees, rather than the business.
Bankruptcy on any level is not simple, and for a business it is very complex. We saw hope in selling the business to someone who wanted to carry on the dream. The idea was that the new purchaser would get a new Toy Joy, free of the giant debt that had overshadowed our experience. We started the process of finding a buyer, while working 10-hour shifts at the store. Keeping Toy Joy intact was our only goal. We didn’t care what we ended up with.
On March 5, 2014, we went to what we expected would be a normal hearing for our bankruptcy case. With SXSW around the corner, we were asking for more time to sell the business. The judge ruled a dismissal with no appeal, in favor of the bank. We spent the rest of the day in shock, but somehow kept the store operating. It’s hard to explain how unexpected it suddenly was, despite the constant threat we had been operating under. All of a sudden, Toy Joy was no longer ours, and we had no time to prepare, to warn our customers or say goodbye.
The bank can do several things from here. The most likely outcome is that someone will buy Toy Joy from the bank at a MUCH lower price than we paid. Among the potential buyers are the former owners. We are trying to comprehend how a bank can give a million dollars to someone for a business purchase, and then accept 10% of that amount to repurchase the business 5 years later. Maybe one day the math will make sense, but I don’t think the sentiment will ever feel right for us.
There is a lot we left out. How much we LOVED Toy Joy has nothing to do with our failures. How much we loved the amazing employees who loved Toy Joy as much as we did. How much we enjoyed the customers, especially the wide-eyed little ones. We loved the art and the creativity, and we loved being part of the Austin community. We loved being a part of your celebrations, and your weirdness.
We will be holding a Reddit AMA on March 10, 2014 at 11 AM Central, and we will continue answering questions via email, Facebook, and Twitter. Toy Joy will be operating as long as the bank allows. We love you all too much to leave you now.
Keep Austin Fun!
TL;DR: Toy Joy was saddled with a giant pre-recession loan that it could never pay off. It will probably survive the bankruptcy, but as a new entity. If you care, you will read the article we spent so long writing.
-Lizzy Newsome and Trevor Yopp