Bloomberg reported that Toys “R” Us seems to be headed towards liquidation. If the company goes ahead with the liquidation of its US operations, it would actually be a huge blow to the toy industry.
While Toys “R” Us may not have been the largest toy seller in the country (Walmart is the largest toy seller in the US), it has been the key testing ground for innovations in children’s games, gadgets and other toys.
Bloomberg reported earlier in the week that the company was preparing to liquidate its US operations that were bankrupt as it had failed to find a buyer or even arrive at a restructuring deal with its lenders.
Internal sources who were familiar with the matter, but asked not to be named as the information was still confidential, said that while things were still fluid, chances of the company having to liquidate its assets were becoming higher. Hopes were fading that the company would be able to find a buyer that would help keep at least a part of the business in operation. And lenders also were not agreeing to a debt restructuring, the sources said.
The toy company declared bankruptcy in September 2017, hoping to emerge leaner and with more manageable debt. The company took out a new loan of $3.1 billion in the hopes of turning things around during the holiday season. Unfortunately, the gamble did not pay off, and things got even worse, which cast doubt on the toy chain’s viability.
Toys “R” Us remains the one place where innovative new toys get discovered. The company devotes so much of its shelf space to toys compared to the few shelves that other retailers dole out. And the company has been known for giving smaller companies and new toys a chance on their shelves. In fact, many times, a product is first tried out at Toys “R” Us for a season. Depending on its success, it is then added to the mass market chains such as Walmart or Target.
BMO Capital Market analyst Gerrick Johnson feels that if Toy “R” Us were to disappear, it would hurt innovations in the toy industry. Additionally, toymakers will have less visibility for their products; Toys “R” Us offers toymakers the chance to display their products on their shelves all year long. Mass retail chains, on the other hand, have a small selection of the most popular toys most of the year and only increase their stocks during the frenetic holiday season.
Johnson feels that without a toy store that is dedicated to toys the whole year round, growth in the industry will slow down.
According to data, the toy industry is already struggling. The industry showed only a 1% growth in 2017, and toy sales actually fell during the holiday season. While some chalked the drop in sales to Toys “R” Us bankruptcy, others actually felt that it was because of too much dependence on movie tie-ups as well as a lack of novelty.
The short-term impact of the company’s liquidation is going to be felt throughout the toy industry. Clearance sales will be massively discounted merchandise which will suck up market share and slow down sales in competitors’ outlets.
On Friday, Mattel’s shares dropped by as much as 10%, Hasbro Inc. lost 3.8% and Spin Master Corp. and Jakks Pacific Inc. also declines in their share prices.
The thing is, despite all its struggles, Toy “R” Us is still generating about $7 billion in annual sales in the US alone, an indication that people still buy toys.