Five Contenders to Benefit Most from Toys 'R Us' Demise
Toys ‘R Us did not go out of business due to a lack of demand for toys. In fact, per NPD, US & Global toy sales increased 1% in 2017. In the US alone, the toy market brought in over $20 Billion in sales and grew 1%. Same goes with their Babies ‘R Us brand. The baby care market brought in $30 Billion in 2017.
There are many reasons why TRU when under, but it wasn’t due to demand. The demand (and sales) are there. Toys ‘R Us did approximately $6B in revenue in 2017. But where do those sales go now? Analysts predict that 95% of the sales will transfer to other merchants. Who is making the case to earn the sales? Here is who I think is best equipped to get more than their fair share of Toys ‘R Us’ sales.
WalMart had already eclipsed Toys ‘R Us as America’s #1 toy retailer, with an estimated 30% market share. With their large store network, they are the obvious choice as winner in the competitive landgrab of TRU’s sales. WalMart is planning on going big this holiday season. They announced an integrated toy line and marketing campaign with Ryan Toy Review, the 6 year old YouTube sensation who earns $11M per MONTH in ad revenue. My 5 year old gets a dime for taking in the recycling bins….
WalMart is also making strategic forays into the baby care space. In June, they announced that they expanded their online baby offering by 30K skus and rolled out an enhanced web experience. Baby care is not new to WalMart – they already have an online baby registry and expansive assortment. Where they lack is in the service component, which is critical for baby shoppers, especially new parents.
Bottom line: I expect WalMart to have a killer holiday season in the toy category and a promotional price war with both Amazon & Target on the hottest toys. Kudos for WalMart in investing in their online baby care experience. That should increase the potentially to capture some of BRU’s eCommerce business. However, I don’t see anything they are doing in their brick & mortar stores that will give them more than what they should get anyway.
Amazon definitely played a role in Toys ‘R Us demise. Now they are positioning themselves to win with parents this holiday season. Amazon will be publishing a large toy catalog this season, reminiscent of Toys ‘R Us Big Book catalog. This catalog will be mailed and distributed in Whole Food locations. In addition, they are investing heavily into having the hottest toys at the best prices. Expect to see extremely promotional pricing as they try to grab as much share as possible.
Bottom line: Amazon is looking more and more like a traditional retailer. I fully expect them to rack up the toy sales this season.
Party City took many observers by surprised when they announced their decision to launch 50 “Toy City” popups this holiday season. Leveraging their expertise in seasonal popup stores, Toy City locations will open alongside Halloween City stores in several markets. In my opinion, this is brilliant. They already have the operational infrastructure in place to support popup stores and there is significant overlap with Party City’s core customer base. In addition, this is a great way for them to test if the toy category is a long-term target without any large capital investment.
Bottom line: Way to think outside the box! Considering Party City wasn’t on anyone’s list as a retailer who could benefit from Toys ‘R Us’ demise, this should be a win.
Based just on geography, Target is poised to make out from Toys ‘R Us closure. Over 90% of both Toys & Babies ‘R Us locations are within 5 miles from a Target store. That being said, Target knows toys. Target has been on a roll, with increasing toy comps for about 4 years. On a May earnings call, Target acknowledged they are increasing investment in both toys & baby care categories to be sure the meet the increased demand. In addition, they are strategically focused on licensed and exclusive product offerings. For this to pay off, they need to ensure that these new, exclusive items are merchandised and marketed effectively.
Bottom line: Target knows toys & babies. They are positioned nicely to capture additional demand and are taking steps they can service the customer.
JC Penney’s announced that they are rolling out 500 “baby shops” within existing stores that are in close proximity to a closed Babies ‘R Us. At a high level, this is interesting and should offer them an opportunity to capture additional sales. Parents, especially new parents, want to try out the larger purchases (stroller, car seat, etc) and by strategically selecting stores due to proximity to BRU, JCP is taking advantage of a trade area that is used to having this option.
However, I think they are going to fall short in a few areas.
In their earnings call earlier this month identified their core customer as women between the ages of 45-55. While the average age of a woman giving birth has risen in recent years, only about 3% of babies are born to women over the age of 40. This initiative doesn’t align with who they claim they are going after.
I don’t believe they will be staffed with the product experts they need to make a difference in this market.
Their lack of baby registry will be an obstacle to overcome.
Bottom line: JCP will get some incremental sales from this, but I don’t see this being a huge win for them in the long run.
This is an interesting time in retail and it’s exciting to see expected and unexpected players vie for the sales that Toys ‘R Us left on the table. Besides these 5, other retailers who are expected to get a piece of the pie include Kohls, Buy Buy Baby & Barnes & Noble. This is causing retailers to step up their game, and it will only benefit the customer.