The liquidation of Toys”R”Us is the unfortunate but inevitable conclusion of a retailer that lost its way and forgot core retail competencies, says Neil Saunders, managing director of GlobalData Retail.
While the Toys”R”Us store closings are a blow to the industry, reports by analysts stating the toy industry will decline by 15-20% in 2018 defy both math and common sense. Consumers will not put an end to buying toys because their local Toys”R”Us store closed its doors. That just defies logic.
One of several experts weighing in on the retail chain’s recent announcement, Saunders states that even during recent store closeouts, Toys”R”Us failed to create any sense of excitement. Moreover, its so-called heavy discounts remained well above the standard prices of many rivals like Amazon and Walmart.
“Toys”R”Us may well blame suppliers and competitors for its demise, but the primary responsibility lies with poor management decisions,” Saunders explains. “As the competitive dynamics of the toy market intensified, management failed to respond and evolve. As such, the brand lost relevance, customers and ultimately sales.”
More people are turning toward technology to meet their retail needs – and companies like Amazon are reacting by creating customer experiences that meet the fast-paced, technology-driven preferences of shoppers. There’s a trickle-down effect happening, where traditional brick and mortar retailers are facing disruption in conventional shopping environments that used to dominate in this industry, adds Joseph Nemia, head of asset based lending at TD Bank.
No fun for parents
Toys”R”Us created a big and fun world—for kids. But it was no fun for parents. As an experience, it was just difficult—big, noisy, and the merchandise was no different than what was available cheaper—and quieter—online, says Alan Behr, a partner in the Corporate & Business Law Department and Intellectual Property Practice, and chairman of the Fashion Practice at Phillips Nizer LLP.
“Toys”R”Us suffered from a too-heavy reliance on external branding—to the point that, after its takeover and painful watering down of the once-high-end FAO Schwarz store in Manhattan, someone walking in and asking for a play doctor’s bag—as I tried to do—could not get one because there were no doctor’s bags branded as Star Wars, Star Trek, etc.,” Behr says. “Ironically, FAO Schwarz was sold, reinterpreted, and apparently will survive.”
Parents will continue to buy
While the Toys”R”Us store closings are a blow to the industry, reports by analysts stating the toy industry will decline by 15-20% in 2018 defy both math and common sense, says Juli Lennett, SVP, industry advisor – toys at The NPD Group
Parents that would go to Toys”R”Us for a birthday or Christmas gift will not stop buying that gift; they will likely go somewhere else for it. Consumers will not put an end to buying toys because their local Toys”R”Us store closed its doors. That just defies logic, she says.
Toys‟R”Us represented about 12% of U.S. toy industry sales in 2017, according to NPD’s Consumer Tracking Service. Assuming that every single parent that would have purchased a toy from Toys‟R”Us now decides their child isn’t getting a toy this year because Toys‟R”Us isn’t there anymore, the worst case scenario is that the toy industry will decline by 12%, Lennett states.
NPD found that when parents bought a toy last year at Toys‟R”Us, 70% of them were purchased for an occasion like a birthday (23%) or Christmas (34%). The other 30% bought a toy for no special reason. In addition, nearly 70% of toys purchased at Toys ‟R” Us were purchased because kids asked for the specific toy or brand of toy.
“Let’s crunch the numbers a bit more and assume some parents instead choose to buy that toy from another retailer,” Lennett says. “We can safely assume that parents will continue to buy for occasions like a birthday and Christmas, and we can assume that some parents will still buy presents for no special reason. Let’s apply the 80/20 rule and say that 80% of those Toys‟R”Us parents actually do still buy toys. If this happens—which I argue is the more likely scenario—the organic decline for the total toy industry will be in the low single digits.”
Focus on facts, not news reports
Lennett also addresses the recent conversations suggesting the demise of Toys‟R”Us is due to the “fact” that kids aren’t playing with toys any longer. “The fact of the matter is the global toy industry last year was the largest it has ever been in the history of the industry,” she says. “In the U.S., the toy industry has grown 4.5% on average over the last three years,” she says. “Does that scream “kids aren’t playing with toys?”
Technology has impacted toy sales, without a doubt, but the industry has a track record of responding and recuperating. When tablets were all the rage, there was a slowdown in toy sales, but sales have recovered. In 2017, the video game industry had a great Q4 and was likely a contributor to the slowdown of toy sales during that quarter, Lennett adds.
“I expect toys will recover again, as the video game industry also goes through cycles,” Lennett explains.
She also points out that the noise level is rising in light of the Toys‟R”Us news to the point where much of what we’re seeing in the press is being over exaggerated.
“This has to stop,” Lennett says. “Collectively, we must focus on the facts, and use them to inform our decisions. As an industry, we also have to plan for a successful holiday season, as there will be plenty of amazing new toys to spark our kids’ imaginations.”