After 70 years in the business of making childhood dreams come true, Toys “R” Us announced it would shutter its 735 U.S. stores. Consumers young and old are mourning the retailer, but nostalgia has yet to save the iconic toy store.
“It’s a little unnerving to sit back and watch a giant like Toys ‘R’ Us not have their act together,” said Sherry Smoak in a phone interview. Smoak is the director of the D.K. Hardin Center for Market Research and an assistant professor at Elmhurst College in Illinois. “I think it’s probably a big wake up call for the other large providers,” Smoak adds.
A billionaire introduces hope for the toy retailer
In late April, the Toronto investment firm Fairfax Financial Holdings Ltd. won a bid for the Canadian part of Toys “R” Us’ business. The firm outbid billionaire Isaac Larian who is still trying to save a swath of US stores, but may have to compete once again with Fairfax. According to RetailDive, Fairfax has recently expressed interest in US properties.
Larian is CEO of MGA Entertainment and best known for creating the Bratz dolls and Little Tike toys. Larian spoke to the media of his own nostalgia, remembering how he sold his first toy at Toys “R” Us in 1979. Today, Larian says that 20% of Little Tikes sales are made through the retailer and he’ll have to lay off some of his factory workers if the chain cannot be saved.
Larian created a (now shuddered) GoFundMe page to save the retailer. The video and marketing for Larian’s efforts stress that this campaign will “save American Jobs.” In fact, more than 31,000 Toys “R” Us employees are expected to lose their jobs once the company is liquidated. But why would Larian’s version of the toy retailer succeed where the previous company failed? According to CNN Money, Larian “blamed the demise of Toys “R” Us on its private equity owners, who saddled the company with billions in debt.” Larian had put up $200 million with the help of a few investors, but would need to raise $1 billion to realize his plan.
In April, after being rejected in his bid for the Canadian stores, Larian made a bid for 274 of the US stores, including the toy store’s headquarters. This bid was also rejected. According to RetailDive.com, “If Larian or any other potential suitor is to save some chunk of Toys R Us in its home country, they’ll have to do more than issue platitudes about jobs and the retailer’s history. More specifically, they’ll have to pony up some money.”
Some analysts still believe there is a good possibility that Toys “R” Us will no longer exist in the US. According to Forbes.com, “retailing has simply changed too much in recent years and, to put it bluntly, Toys ‘R’ Us is a company that no longer needs to exist.”
Competitors scurry to capitalize on Toys “R” Us closing
If Toys “R” Us is a sinking ship, (despite Larian’s efforts to launch the lifeboats) there are certainly sharks in these waters as well. Some competitors have spotted opportunity in the fall of this American retail giant.
Bed Bath & Beyond, for instance, has promised to honor Toys “R” Us gift cards at a reduced rate. This is a big deal as both Toys “R” Us and Babies “R” Us shut down their online retail sites almost immediately after announcing the liquidation sale. Furthermore, all gift cards were set to expire on April 21. This makes it hard for some shoppers to get to a store when they don’t live near a brick and mortar location.
Another shark looking to capitalize on leftover inventory is Strategic Marks, a company that buys and relaunches brands. The company owns the brand name KB Toys and plans to open 1,000 pop-up toy stores from Black Friday through the holiday shopping season.
“My assumption is that there’s about half a billion dollars worth of toys that have been produced for Toys “R” Us with no place to go,” Ellia Kassoff, president of Strategic Marks, told CNNMoney. “That’s a big void that we’re hoping to fill. Kassoff has already contacted more than 200 toy suppliers, including Mattel and Hasbro, to negotiate for excess inventory.
Smoak agrees that a pop-up toy store could work. “That makes a lot of sense from a cultural sense,” she said, adding that consumers want an experience and that’s what a pop-up store delivers. “They’re a lot of fun and you don’t know how long [the store will] be there. It’s different and a little bit of a new twist on brick and mortar.”
Which retailers could be next?
While Amazon has been blamed for many challenges faced by brick-and-mortar retailers, the path to a company shutting its doors is much more complex. Of course, the changing tides in retail have been heavily influenced by e-commerce and these trends can speed up a company’s demise. Stick with us for next month’s post on how retailers unravel and who could be next.
Note: This story is developing rapidly. All claims in this post were accurate at the time of publication.
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Written by Kim Kelly Consulting
