It’s official, possibly the world’s most well-known toy retail chain is filing for bankruptcy after wrestling with mounting debts. However, for suppliers in the UK and Europe this isn’t cause for panic as the claim will not affect stores located in Europe or Asia.
However, for the industry at large this is big news. The stock market has already shown its first reaction to the news, with Hasbro’s stock taking a small hit, down 0.90 per cent. Elsewhere, Mattel stocks are up by 0.77 per cent, with investors selling off shares ahead of the news due to the expected disruption ahead of the holiday season.
Spin Master and Jakks Pacific are predicted to also show extra volatility in the wake of the news.
Having received a commitment for over $3 billion in debtor-in-possession financing from lenders including a JPMorgan-led bank syndicate and certain existing lenders, said the Wayne, New Jersey-based company, the firm has reassured suppliers that they will be paid for all stock shipped over the holiday season, however 2018 remains a mystery.
With a wider perspective, this news comes as part of a growing trend of physical retailers significantly downsizing as customers move increasingly online. In the US, department stores Macys and Sears have closed hundreds of retail locations across the country struggling to compete with Amazon and discount retailers like Wal-Mart. Across the pond, Toys R Us biggest rivals come from the likes of Tescos and B&M Bargains, retailers that can and will undercut the retail giant in terms of pricing.
The Entertainer has highlighted its focus on lower-priced, collectable items, which enable the retailer to turn over a bigger profit. In an uncertain financial landscape, this may be where brick and mortar retailers should pivot towards, leaving less shelf space for the larger, infrequently purchased items.
Industry analyst Karl Harvard of the PA Consulting Group offered his thoughts on the filing, saying that Toys R Us placed too much emphasis on price and not enough on the imaginative experience of shopping in an immersive environment.
"Their physical presence was their advantage, but continuing to treat their stores with the primary focus of selling, meant price became the key factor," explains Harvard.
"Turn it into a fun destination, a real experience, and footfall would increase and price becomes less important. It also has a big knock-on effect for those other retailers who had concessions in Toys R Us stores."
Regardless of whether Toys R Us pulls through its challenging winter period, one thing is for certain: toy retailers, even when it comes to multinational giants, must be savvy about the way they are conducting their business or they may risk losing out to web rivals and discounters.
Big franchise owners like Hasbro, Mattel and Spin Master would do well to take into account the changes in the market too, as customers begin to demand a different kind of retail experience.