Toy Story

As we approach the all-important fourth-quarter selling season for toys, it seems like a good time to take a look at what has been happening in the industry since Toys ‘R’ Us closed the last of its U.S. stores in June of this year, after declaring bankruptcy in September 2017:

• Other retailers are trying to take over where TRU left off. Walmart expanded its in-store toy assortment by 30% in some locations and its online array by 40% for the holidays, and is debuting a number of exclusives. Target recorded strong increases in toy sales in Q2 and is doubling inventory in the category for the fourth quarter, compared to last year. Amazon is promoting its toy inventory in a number of ways, including sending out dedicated toy catalogs. JCPenney and Kohl’s are upping their presence in toys, with the former carrying 40% more merchandise and the latter adding key brands including Lego and FAO Schwarz. Party City is opening 50 Toy City pop-ups for the holiday. And many independent toy stores have reported post-TRU sales increases, at least in the short term.
• Shuttered toy chains have come back to life in a limited way. ThreeSixty Group’s FAO Schwarz partnered with Hudson Group to launch a chain of airport stores, starting with LaGuardia this fall. It is also planning shops in China and opening a flagship on New York’s Fifth Avenue in November, as well as continuing its brand-extension efforts through retail-exclusive deals. KB Toys owner Strategic Marks has announced its intention to open 400 to 600 bricks-and-mortar pop-ups and an Internet presence for the 2018 holidays, followed by as many as 300 to 400 permanent stores within four years.
• TRU lives on in some international territories. TRU Canada, with 82 locations, is now owned by investment firm Fairfax Financial Holdings. Irish retailer Smyths Toys acquired 93 TRU stores and four e-commerce sites in Germany, Austria, and Switzerland. TRU’s Asian business, a joint venture between Toys ‘R’ Us and Fung Retailing, continues as a going concern, although its fortunes are threatened by a legal fight between the two partners over what will happen to TRU’s stake in the business. Toys ‘R’ Us South Africa expanded into Botswana this month.
• Many toy companies are struggling in the wake of TRU’s liquidation. Toy State, a marketer of licensed vehicles and other products, closed down in August. In the second quarter of 2018, Jakks Pacific’s sales declined 11%, Hasbro saw a 7% revenue decrease, and Mattel’s net sales shrank by 14%, leading it to reduce its workforce by 22% (2,200 jobs) and close a factory. All attributed the losses in large part to the closure of Toys ‘R’ Us. There has also been consolidation in the industry, with Spin Master buying Gund, Jazwares acquiring Russ Berrie/Applause, and Basic Fun! purchasing K’Nex, to name just a few recent examples.

In spite of all the upheaval, and the negative results for the leading toy suppliers, the NPD Group believes toy sales overall have increased this year to date. The researcher estimates that toy sales were up 7% in the first half of 2018, in part because the news about TRU’s closure kept the category top of mind and spurred emotional purchases in the months leading up to the chain’s final days. Lower-priced toys—especially collectibles brands such as L.O.L. Surprise, Fingerlings, Hatchimals, and Soft’n Slo Squishies; action figures tied to Black Panther and Avengers: Infinity War; and dinosaur and pony/unicorn toys—led the way.

How will toy sales fare in the fourth quarter? The licensing and toy businesses are anxiously awaiting the answer.

A heads-up: Raugust Communications’ monthly e-newsletter will go out next Tuesday, September 18, 2018. The Datapoint research spotlight will focus on licensing in the meal kit sector, while the Licensing Topic of the Month will examine how some licensing partners are taking the idea of the “fit” between property and product to new levels. If you do not yet subscribe to this free publication, you can do so here.