Toys ‘R’ Us is preparing to liquidate all of its nearly 750 stores in the U.S., and while there is a chance that a buyer could swoop in and buy up to 200 of the stores, it is now clear and undeniable: Toys ‘R’ Us, as America knew it, is on its death bed.
But the toy industry isn’t.
The U.S. toy industry grew to $20.7 billion in sales last year, the largest it has ever been, and grew at an average 4.5% over the last three years, according to NPD Group.
Toys ‘R’ Us represented 12% of U.S. toy sales last year. But to conclude that the toy industry is about to decline 12% without Toys ‘R’ Us is to assume, as NPD Group analyst Juli Lennett writes, “that every single parent that would have purchased a toy from Toys ‘R’ Us now decides their child isn’t getting a toy this year because Toys ‘R’ Us isn’t there anymore.”
Rather, Lennett writes, “Let’s apply the 80/20 rule and say that 80% of those Toys ‘R’ Us parents actually do still buy toys. If this happens—which I argue is the more likely scenario—the organic decline for the total toy industry will be in the low single digits.”
Moreover, 70% of toys purchased at Toys ‘R’ Us were prompted by kids requesting a specific toy; kids won’t suddenly stop asking for toys, parents will just have to go elsewhere. And in many cases, they already are: they’re heading to Walmart or Amazon. In fact, Walmart was the biggest toy retailer in the country last year, not Toys ‘R’ Us.
And there’s more good news in toys: Hasbro has seen high demand for its licensed “Black Panther” action figures, buoyed by the film banking more than $1 billion at the box office. In a similar example, Disney generated an eye-popping $57 billion in licensed merchandise in 2016, much of that driven by toys from movie franchises like “Frozen.”
Clearly, hit superhero movies and animated movies are what drive the toy business now. As CNNMoney wrote in a 2016 headline, “Hasbro should rename itself Disney Toys.”
Sure, the closure of Toys ‘R’ Us is the end of something. (“Another store we grew up with is gone,” a shopper lamented to the Richmond Times-Dispatch.) Nostalgia for the brand is understandable. But when was the last time you really sought out a Toys ‘R’ Us store and spent money there?
The chain’s decline is partly due to its own mismanagement (it built up billions in debt, which led to spending cuts and a decline in store upkeep), but also due to inevitable disruption by more convenient options.
It is an unsentimental fact: Why would you go to Toys ‘R’ Us if Amazon has the toy you want at a competitive price and can ship it to you tomorrow? As Yahoo Finance editor in chief Andy Serwer put it on our Midday Movers live show, “There used to be the mom-and-pop shops, and they got killed by the superstores, mainly Toys ‘R’ Us, then Toys ‘R’ Us got killed by Walmart, then Walmart got killed by Amazon, and now Amazon’s getting killed by the phone.”
As for Toys ‘R’ Us? The brand name may live on: Reuters reports that brand specialists expect someone to buy the rights to the Toys ‘R’ Us name, even if all the stores close. The name has obvious value: widespread consumer awareness of what it stands for. But the possibilities are hardly exciting. As one expert says, the name could be great for “a Chinese manufacturer that seeks credibility” in America.
Toys ‘R’ Us won’t survive as the toy store you knew from your childhood. But that’s how capitalism works. And the toys will play on.