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UPDATE 6-Toys 'R' Us closure leaves void for suppliers, endangers 30,000 jobs

(Adds background on industry, analyst comment, updates shares)

March 15 (Reuters) - Iconic toy retailer Toys 'R' Us Inc will shutter or sell its stores in the United States after failing to revamp its struggling business, putting 30,000 jobs at risk and leaving a void for vendors who supplied the company with $11 billion worth of goods a year.

As shoppers flock to Amazon.com Inc and children choose smartphones and screens over toys, Toys 'R' Us has struggled to boost sales and service debt following a $6.6-billion leveraged buyout by private equity firms in 2005.

Toys 'R' Us plans to liquidate inventory at 735 U.S. stores, including Babies 'R' Us locations, by the end of this year. The wind-down follows a bruising holiday season, when the company failed to stay competitive and sales came in well below projections. The quarter accounts for 40 percent of its annual net sales.

With the disappearance of Toys 'R' Us, everything from squishies and slime kits made by small companies, to board games and Barbie dolls by heavyweights Hasbro Inc and Mattel Inc, will lose a top customer.

Hasbro said on Thursday the pending liquidation and closure is expected to be "disruptive" in the near term.

Lutz Muller, president of consultancy Klosters Trading Corp, estimated a single-digit sales impact on companies like Mattel, Hasbro, Spin Master Corp, Jakks Pacific Inc, Funko Inc and MGA Entertainment Inc.

"Bad but not fatal," Muller said. "But for the little guys that depended on Toys 'R' Us as a major showcase ... a large number will go to the wall."

Jefferies predicted the bankruptcy would depress 2018 revenue across the industry by between 2.5 percent and 5.5 percent. It said 40 percent of the toy sales up for grabs would flow to Amazon and 30 percent to Walmart Inc.

Shares of Mattel fell nearly 3 percent while shares of Hasbro were trading slightly lower on Thursday; they had tumbled last week on Toys 'R' Us' liquidation reports.

Toys 'R' Us' creditors said in a court filing that Target Corp, Walmart and Amazon pricing toys at low margins, and a greater-than-expected decline in toy and gift card sales following its bankruptcy filing in September, led to the weak performance in the quarter.

"Even during recent store close-outs, Toys 'R' Us failed to create any sense of excitement," said Neil Saunders, managing director of retail research firm GlobalData Retail. "Its so-called heavy discounts remained well above the standard prices of many rivals."

TOYS ABROAD

Wayne, New Jersey-based Toys 'R' Us was already in the process of closing one-fifth of its stores as part of an attempt to emerge from one of the largest ever bankruptcies by a specialty retailer.

In September, when the company operated more than 1,600 stores globally, with roughly 800 stores outside the United States, it got court permission to borrow more than $2 billion to start paying suppliers.

But efforts to keep the business going collapsed after lenders decided they could recover more in a liquidation by closing stores and raising money from merchandise sales.

The company, which is also winding down its UK business, is still trying to salvage some 200 U.S. stores as part of negotiations to sell its Canadian business.

It is also pursuing a reorganization or sale of its operations in Asia and Central Europe, including Germany, Austria and Switzerland.

Keeping up a good relationship with vendors who supply across Toys 'R' Us throughout liquidation proceedings will be key to those deals, sources with knowledge of the matter said.

Seventy-year Toys 'R' Us does not rule out a last-minute offer for all of its stores and said it will announce the winning bidder of a March 29 auction on April 12.

The company's troubles mirror those of other mall-based retailers in the United States that have shut stores and fired employees in a bid to stay relevant.

More than 8,000 U.S. retail stores closed in 2017, roughly double the average annual store closures in the previous decade, according to data from the International Council of Shopping Centers.

Despite the threat of 30,000 job losses, experts do not expect retail employment and wages to be subdued in the near term. Approximately 700,000 jobs in the industry need to be filled, say retail staffing firms and trade federations such as the NRF.

Aly Sanchez, a two-year employee of Toys R Us in Kansas City, said, "It's an overwhelming feeling not knowing whats going to happen. And if we do close, we don't know if we'll even get severance pay."

(Reporting by Tracy Rucinski in Chicago and Abinaya Vijayaraghavan in Bengaluru; additional reporting by Aishwarya Venugopal and Nandita Bose Editing by Sayantani Ghosh and Nick Zieminski)