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Toys R Us made 2 fatal mistakes that led to a death spiral towards bankruptcy

Ashley Lutz

Toys R Us reportedly could file for bankruptcy as soon as this week.

The iconic American toy retailer is considering seeking Chapter 11 bankruptcy protection as a part of a plan to restructure roughly $US400 million in debt due in 2018, CNBC reported.

Toys R Us made several mistakes that are killing its business, Neil Saunders, managing director of the research firm GlobalData Retail, wrote in a recent note to clients.

Here are the key mistakes, according to Saunders.

1. Having a subpar website.

Toys R Us' website isn't as appealing as those of competitors like Amazon or Walmart.

"Toys R Us has lost out in the digital space," Saunders wrote. "Although recent digital investments have been made, the website and general e-commerce proposition are still below par. By our calculations, Toys R Us continues to lose online market share in toys."

Mounting competition has already forced Toys R Us to lower its prices to match Target's, Walmart's, and Amazon's.

Failing to properly invest in e-commerce gives customers even less of a reason to visit.

2. Spending too much on stores.

Toys R Us has huge, big-box stores -- similar to Best Buy or Target -- that are expensive to staff and maintain, according to Saunders.

"Toys R Us has large, expensive stores," Saunders writes. "These are increasingly unsuited to what consumers want and expect, and they are steadily becoming less productive and efficient."

The company has more than 800 US stores, but in Saunders' view, the company should spend more on e-commerce.