Toys R Us to Sell All Stores
Edward Ed Schinik, COO, Yorkville Advisors
For generations of American kids, Toys R Us was why they “didn’t wanna grow up.” It was the place for “bikes and trains and video games…” and countless other toys, billed as the “biggest toy store” in advertising jingles. That era will soon come to an abrupt end.
An announcement recently said Toys R Us is in the process of liquidating all of its holdings, selling off all its products and store locations – 800 stores in all in the United States. This decision comes after more than 50 years in the toy business, and at least 30 years as one of, if not the largest, toy seller in the country.
The news is bad for kids who saw the stores as the “best place in the world” and begged parents to take them there every chance they got. It will be bad for collectors who counted on the selection at their local store to get the latest, greatest toys. It will be bad for the toy industry, and it could well be near-catastrophic for certain brands.
How big a blow will this be? The numbers are tough to sort through, but Toys R Us accounted for about one-fifth of all US toy sales last year…and that was a disappointing year by their standards. Now toymakers will have to depend on online sales and fight for already limited space at big box stores such as Walmart and Target.
Some industry watchers say this transition could cause a loss of the equivalent to about 15 percent of what Toys R Us would typically sell. And those reports have triggered yet more bad news for the toy industry. Mattel stock dropped 8 percent, and at least one media report floated rumors that the company may be considering bankruptcy. Hasbro stock fell about 4.6 percent as well.
And the little guys? Well, it’s tough to say where they will land in all this, but you can bet they are scrambling for ideas. Some brands depended almost solely on Toys R Us for presentation and distribution, and they don’t know now how much more time they have, only that the clock is ticking.
Most people blame both Toys R Us’ large debt as well as the company’s inability to compete either with lower cost rivals such as Walmart or the steadily encroaching market of online sales, mostly on Amazon.com. Regardless of the reasons, toy brands now have to appeal directly to consumers in order to drum up sales that were accounted for in foot traffic and impulse buys at Toys R Us.
Online shopping presents a very different dynamic. In most cases, consumers are actively looking for a specific product, rather than just browsing for something fun. That, combined with younger kids having less access to the internet could create a market loss for toy companies who depend on that kid mentally making a gift list every time they walk into a store.
