Blog

Is the Third Time a Charm (or perhaps a Beanie Baby) for Toys “R” Us?

Dave Huntoon

Toys “R” Us is proving to be the Phoenix, or Lazarus, of the retail world. Toys “R” Us, with their mascot Geoffrey, had risen to become the largest toy retailer in the world, emerging as a prototypical category killer along with Home Depot, Best Buy, and Staples in the 1980s and 1990s. Toys “R” Us experienced a series of setbacks in the ensuing years and filed for bankruptcy in 2017, followed by the closure of all their U.S. stores in 2018. (And no, I refuse to use the backwards R – or “ᴙ”) in this blog – if Toys “R” Us was good enough for their SEC filings, then it’s good enough for me).

As we previously reported, Toys “R” Us emerged from bankruptcy in 2019 as Tru Kids, and opened 2 stores in November 2019 (Westfield Garden State Plaza in New Jersey and Houston Galleria in Texas). These were not traditional Toys “R” Us stores – they were smaller (~6,000 square feet) joint ventures co-operated with b8ta to emphasize new product offerings. Both stores closed in 2020 – the impact of the COVID-19 pandemic was cited as the reason, although it’s an open question as to whether the concept would have succeeded in any event. Now, WHP Global, a firm that specializes in acquiring global consumer brands, has acquired a controlling interest in Tru Kids and is planning to open new Toys “R” Us stores in the U.S. (format yet to be announced), ideally in advance of the 2021 holiday season.

Certainly the name Toys “R” Us resonates in the U.S. (and elsewhere throughout the world) as a well-known purveyor of children’s toys. However, the challenge for the new owners is – can they find a retail model that is profitable? The traditional Toys “R” Us model was initially successful because there was nothing else like it in the world – a superstore devoted solely to toys. However, a number of factors caught up with Toys “R” Us – competition from supercenters such as Walmart and Target, which offered a strong (albeit not as large as Toys “R” Us) selection of toys with thousands more stores than Toys “R” Us to make them more convenient for shoppers, competition from e-commerce, and the fact that Toys “R” Us generated over 40% of annual sales in the final quarter of the year, resulting an unprofitable first 9 months of the year and forcing an undue reliance on the strength of the holiday shopping season. In addition, by the end, Toys “R” Us did not come across as an exciting place to shop – understaffed, antiquated sources stuffed with merchandise were not an inviting shopping environment. Any attempt to open a similar concept today would likely have the same result that befell Toys “R” Us just three years ago.

An alternate approach would be to go high end – appeal to more affluent consumers and focus on new introductions. That is the route that Tru Kids initially took with their b8ta partnership. However, the b8ta model thrives on exposing consumers to high dollar, high margin, small footprint products (think $299 “sound lanterns” and $90 meat thermometers) to justify high rents and attentive customer service. While there are certainly a number of kid’s products that fit within that purview, many toys are inexpensive and bulky, which does not lend itself to a b8ta prototype. A number of toy store chains tried to go the high-end route (think FAO Schwarz and Zany Brainy, both of which went bankrupt in the early 2000s), but none have thrived in that space.

A third approach would be to leverage the Toys “R” Us name and focus on e-commerce. That’s the route that Lord & Taylor recently announced they were taking, after the acquisition by Le Tote fizzled. However, how can they compete with the likes of Amazon and Walmart for consumer pocketbooks? Delivery costs alone would likely make a large-scale foray into e-commerce untenable, without the logistical infrastructure to support a cost-effective national footprint.

There are other formats that Toys “R” Us could attempt: pop-up stores around the holidays (similar to Halloween City or Spirit Halloween), “shop-in-shop” concepts inside a supercenter or department store, or airport kiosks. At the end of the day, it may well be that the only viable brick and mortar format is a 1,000 square foot store tucked between Vino Volo and the CNBC Newsstand at your nearby airport, perfect for grabbing a little something for the kids on the way back from a business trip.

 

 

    Sign up for our newsletter by filling out the form below.

    Contact Form

    This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.

    Related News