Toys “R” Us and Bain’s other chains -- Burlington Coat Factory Warehouse Corp., Guitar Center Inc. and Michaels Stores Inc. -- were part of the specialty retail boom that took off in the 1980s. By offering a broader selection than smaller, independent shops and department stores, the business model dubbed “category killer” flourished.

Bain, Staples

Bain Capital helped invent the business model, co-founding Staples in 1986. The office-supplies chain spawned more than a dozen copycats and paved the way for specialty to be applied to almost every product niche imaginable.

That gave U.S. consumers oodles of choices and mall owners plenty of renters and reasons to build even more shopping centers. Best Buy, Circuit City and Barnes & Noble flourished, dotting the suburbs.

Then came the recession and newly frugal U.S. consumers flocked to the Web for its ease and lower prices. Online price transparency weakened a specialty chain’s profit margins because consumers can comparison shop at will. The advantage specialty used to have on selection doesn’t exist with the Web’s endless aisles. Their expertise often pales in comparison to the online research shoppers can do on their own.

Sinking Sales

That left a chain like Toys “R” Us, which has 1,500 stores, struggling to increase sales, and put off an exit for Bain and its partners. Revenue at the world’s largest toy-store chain declined 4.7 percent in the U.S. from November to December. That came after revenue had dropped companywide, including both the U.S. and overseas operations, for five straight quarters.

Bain along with KKR and Vornado Realty Trust bought the Wayne, New Jersey-based retailer in a deal valued at $7.54 billion, including net debt, in 2005. At that time, the chain was losing market share to the lower prices at Wal-Mart Stores Inc. and Target Corp. and the U.S. toy industry wasn’t growing.

Not much has changed in the interim. It may have gotten worse. Toy sales in the U.S. are declining as kids spend more time on mobile devices. Amazon has its own toy site, yoyo.com, and baby portal, diapers.com, to compete with Babies “R” Us, the baby chain Toys “R” Us started in 1996.

‘Tough Game’