by Frédérique Tutt, global industry analyst, toys, The NPD Group
Last week’s news of Toys “R” Us shuttering its doors sent shockwaves throughout the toy industry, as noted by my colleague, Juli Lennett, in her latest blog. The global toy industry is bracing itself and trying to work out what this “reset” will mean and how it will navigate the upcoming months. And the question on everyone’s lips right now is who will benefit from Toys “R” Us’ demise; and if it happens, which retailers will see this disruption as an opportunity, country by country.
In the U.S., Toys “R” Us captures in excess of 90 percent of toy specialty sales; in Europe, it accounts for about one quarter of the toy specialty market. Toys “R” Us is the largest toy specialty retailer in Europe, but it is not the only specialty retailer. In fact, there are no significant international toy chain stores that cross all of Europe. Rather, in each country, we have local players with up to six major chains as is the case in France, which means the specialty trade is not going to be orphaned if and when Toys “R” Us closes down or fails to secure a buyer. These other specialist chains are in a prime position to pick up some of the Toys “R” Us business.
Beside specialty retailers, online seems to be an obvious destination for the Toys “R” Us shopper. As described by Juli Lennett, the typical Toys “R” Us purchase is either occasion-driven or from a direct request from the child. As such, the shopper will easily navigate online to find a replacement for its closed Toys “R” Us store and might order online for sheer convenience. You have to remember that online toy sales comprise a bigger piece of the pie in Europe compared to the U.S. In the U.S., approximately 24 percent of toy industry sales happen online; in Europe, it’s 30 percent. Every brick and mortar toy retailer today has an online presence, but to compete with online pure players, brick and mortar retailers serious about the toy category will have to combine strong pricing and promotion with state-of-the art digital marketing to compete effectively in this space.
This reset is also an opportunity for other channels to step up to the plate—I tend to see the glass half-full rather than half-empty. What I mean is that on the whole, grocery stores in Europe have been considering the toy aisle as a loss leader and footfall driver in the last quarter of the year. They have historically only carried a small amount of toys in spring and summer, with increased inventory over the holidays. What I think is that smart grocery retailers will look at the Toys “R” Us closure as an opportunity—like the UK grocers did when Woolworths, then the second largest toy retailer, went bankrupt there in 2009. In Europe, as online sales continue to climb, the one channel that is not as impacted by online sales or footfall decline is food retail. Increasing toy inventory as a year-round proposition would surely compel shoppers to purchase more within this channel. I imagine these retailers are beginning to consider increasing this space to offer more toys and drive their non-food trade.
Beyond grocery, other non-traditional retailers should consider doing the same. For example, outdoor and sports toys could be carried with success by sporting goods retailers, while arts and crafts toys could be carried by hobby and office supply stores (more than they do today). Major manufacturers are also already targeting food and non-food discounters, so taking this approach isn’t a stretch.
While the Toys “R” Us outcome is not the news we wished to hear, and the industry will encounter some turbulence as it navigates its way through this period of flux, manufacturers and retailers do have a chance to view this situation as a global business opportunity.