How was their online presence, pricing and delivery? Did they compete online with Amazon for toys (where they should have had a volume pricing advantage)? I’m guessing no.
Toy selling is a seasonal business. There are two big seasons - Christmas and Easter. A dedicated toy store thus has to carry overhead for the rest of the year. It’s much more efficient for a big box store to just expand the toy section for those times of the year or for online retailers which don’t have to bear the cost of bricks and mortar. Toys R Us has a business model that is simply outdated.
My understanding is that they originally sold items through Amazon but because they wanted to be the exclusive toy seller the deal fell apart - Amazon was unable to sell things Toys R Us didn’t stock.