With Death of Toys 'R' Us, Toy Makers Brace for Major Hit
15 Março 2018 - 9:52AM
Dow Jones News
By Paul Ziobro and Lillian Rizzo
The liquidation of Toys "R" Us Inc. has sent the toy industry
reeling, leaving Mattel Inc., Hasbro Inc. and other manufacturers
without a large chain devoted to selling games and dolls and
forcing them to scramble to secure other outlets to carry their
items.
Toys "R" Us is part of a group of chains that were once seen by
vendors as "category killers" and have emerged as crucial checks on
the power of Amazon.com Inc. Stores like Best Buy Co. and Barnes
& Noble Co. provide electronics manufacturers and book
publishers with vast networks of physical showrooms.
The likely death of Toys "R" Us, which early Thursday filed
plans to liquidate the U.S. operations and other businesses, means
the $27 billion U.S. toy industry will no longer have a national
partner to showcase their wares year-round, test experimental
products and find the next Shopkins or Zhu Zhu pet.
It was a quick unraveling for Toys "R" Us since its September
chapter 11 bankruptcy filing. In a call with employees Wednesday,
Toys "R" Us Chief Executive David Brandon described a cascading
series of events, starting with what he described as a
"devastating" holiday season that led to plans to close more stores
and then to exit from the baby-products business to focus on
toys.
"The hole that we dug in the holiday season put us in a position
where our lender became justifiably nervous as the company was
continuing to consume cash," Mr. Brandon said.
Ultimately, the company is expected to liquidate its entire U.S.
operation, a decision that would impact 33,000 jobs. The company
also is liquidating operations in other countries, and plans to
sell its business in Canada, Central Europe and Asia.
Now, 70 years after Charles Lazarus opened what would become the
America's main toy destination, its stores may disappear from U.S.
soil.
"This industry has been devastated," said Tom Murdough, founder
and CEO of Simplay3 Co., which makes plastic play sets and ridable
vehicles. "This is a major, major hit to the industry."
In five decades of selling toys, Mr. Murdough hasn't known a day
without Toys "R" Us. He founded and sold both Little Tykes Co. and
Step2 Co. in the past and he now runs Simplay3, which he said gets
between 20% and 30% of its sales through Toys "R" Us.
Toy makers don't anticipate recouping all of their sales this
year, or ever, if Toys "R" Us goes away permanently without a
replacement. UBS estimates that Hasbro would lose close to 3% of
its sales for the year if Toys "R" Us liquidates, while Mattel
stands to lose slightly more.
Hasbro CEO Brian Goldner said the maker of Nerf blasters and My
Little Pony dolls is looking to find new places to take its
inventory. But that is more challenging earlier in the year
compared with the end, when retailers are trying to fill shelves
with holiday toys.
"There will be some disruption, more short term than long term,
and then we move forward with growth," Mr. Goldner said at an
investor conference earlier this month.
The toy-industry growth rate could slump going forward too. Toys
"R" Us was primarily responsible for uncovering what would become
the next big thing, since it took chances that other retailers
avoided. "There aren't going to be as many breakout hits, not as
many new items that can blossom," said BMO Capital Markets analyst
Gerrick Johnson. "Toys 'R' Us was a testing ground for a lot of
things."
Toy sales may be concentrated in the other two large retailers,
Target Corp. and Walmart Inc., in the near term. Those mass
retailers primarily sell the top-selling items instead of taking
risks, Mr. Johnson said. That means shares could also build among
the larger toy companies too. "Small companies won't have an
opportunity to shine," he said.
Some toy companies have expanded their presence in unexpected
places in recent years, so the blow isn't as bad as it might have
been when Toys "R" Us held a larger share of the market. Jeremy
Padawer, co-president of Wicked Cool Toys, the maker of Cabbage
Patch dolls and Pokémon toys, says that not only has Amazon.com
become a bigger part of its business, but sites like Zulily.com,
retailers like Hallmark and even grocers and drugstores have become
options to sell its toys.
Mr. Padawer said Wicked Cool is redoubling efforts to find new
retail outlets, even though he doesn't expect to be able to replace
all of its Toys "R" Us sales, which he estimates at 15% of the
business, over the next year.
"While painful, we recognize there is an immediate opportunity
to replace some of the business," Mr. Padawer said. "It will be a
mutual dance between buyers seeking market share and opportunistic
merchants."
Write to Paul Ziobro at Paul.Ziobro@wsj.com and Lillian Rizzo at
Lillian.Rizzo@wsj.com
(END) Dow Jones Newswires
March 15, 2018 08:37 ET (12:37 GMT)
Copyright (c) 2018 Dow Jones & Company, Inc.
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