The toy market is once again – sorry, folks – in play. With recent moves by Target and Macy’s ahead of the critical fourth quarter surge in holiday-driven business, the toy and playthings category is shaping up to be as much in flux as it’s ever been in the past few years. Supply chain logjams, price increases and pandemic uncertainties only promise to exacerbate all of this.
Toy Story: Last Chapter
Of course, all of this comes in the context of the biggest development in toy retailing over the past 30 years: the demise of Toys’R’Us in 2018. At the time it was no longer the dominant force it had been for the previous three decades as Walmart, Target and Amazon got ever more aggressive in competing, especially for the Christmas season. But TRU remained the most important single retail business in the channel, the lead dog in the eyes of shoppers and suppliers alike.
There remains a gap in the market for better toys at retail and this holiday selling season could be gangbusters with all the pent-up demand from last year’s lack of family gatherings.
So, its bankruptcy and eventual liquidation – too much debt, not enough keeping up with the retail times – radically changed the dynamics of the toy industry. Think if Amazon or Home Depot suddenly went out of business, how that would change the way those channels functioned? That’s what happened to toys.
New Toy Baskets
The biggest winners so far have been the three retailers who put the biggest hurt on Toys in the first place. Amazon went after the toy business with a vengeance, issuing print catalogs and really stepping up as the online site of choice for those looking for the latest hot toy of the season. Not to be outdone both Walmart and Target also stepped up their game, expanding their assortments and getting much more assertive in their marketing of the category. And it paid off for all three of these giants who no doubt gained the majority of the lost TRU market share.
TRU to Form
Toys, in the meantime, continued to operate in Canada and overseas. But back in the U.S. its intellectual properties and such were sold to third parties who jumpstarted the online business and opened two boutique-style stores in regional malls that had little in common with the old TRU warehouse format other than the name over the front door and Geoffrey the Giraffe inside.
Whether those stores would have eventually succeeded is now moot. Covid shut them both down last year and if you wanted to be a Toys’R’Us kid for the past year you could only do so on a screen.
Macy’s Makes Its Move
That will now be changing with the news that Toys will return to the physical retail side of the business in partnership with Macy’s, the department store chain that is desperately trying to find new ways to do business in its old real estate. The in-store shops, 400 planned in total, will not start opening until a year from now and details remain sketchy on what they will look like, how big they will be and what exactly will be the merchandising mix between big-time mass market items (the old TRU) and boutique-style better goods (the new TRU). With particulars scarce, one suspects Macy’s pragmatically wanted to get this announcement out as soon as possible to supply good news for its stock price.
The venerable department store will start right away cross-selling with Toys online, at Macys.com/toysrus, which is in addition to the standalone TRU site, run by its current owner, third-party branding company WHP Global. Slightly confusing if you follow these things closely.
Macy’s does carry toys, especially during the holiday season when its famous parade serves as the defacto opening act of Christmas and Santa is a fixture in big stores…albeit perhaps plexiglass barriers again this year. Macy’s CEO Jeff Gennette says once the Toys physical stores are up and running they will “quintuple” the current footprint. He also highlighted the promotional tie-ins that are likely to come with the deal, including placements – can you say Geoffrey balloon? – in the parade entourage.
So, will this work? Of course, it’s way too early to say. There remains a gap in the market for better toys at retail and this holiday selling season could be gangbusters with all the pent-up demand from last year’s lack of family gatherings. That said, Macy’s does not have the best track record when it comes to developing niche businesses within its giant organization. The Story fiasco is just the latest example, and it remains to be seen if the Market small-store concept really has legs.
Still, the opportunity is very tempting and, as with many of Macy’s initiatives, win-lose-or draw you have to give them credit for not sitting still and waiting for the legacy department store model to slowly but surely melt away. Macy’s used to sell a lot of toys back in the heyday of department store retailing. If it’s able to even sell a piece of that now it would have to be very pleased.
The Bullseye and the Magic Kingdom
Target has been a big factor in the toy sector, even pre-TRU demise, but it only took on more share in the years after. One of its recent vehicles has been a program with Walt Disney Co. to place about 60 shop-in-shops in its stores selling the full array of that company’s properties, which now include Star Wars and assorted superheroes in addition to the more expected variety of mice and princesses.
Last week the two companies announced an expansion of that program to 160 locations by the end of the year, no doubt mostly in place to the run-up to December 25. That’s still less than 10 percent of the discounter’s total fleet of over 1,900 units so its impact on the bigger picture is going to be somewhat subdued. But at about 750 square-feet and usually adjacent to kids clothing they should be productive departments. Plus, Target does have a history of working with third parties on in-store shops, including CVS and Starbucks and more recently its new tie-in with Ulta Beauty, just rolling out now. And it is a year-round seller of toys with good results. On a recent analyst’s call, Target’s chief growth officer Christina Hennington said toy sales grew in the “low-20 percent range” year over year during the second quarter.
For Disney, the tie-in comes as it continues to dial back its own retail ambitions, with reports that it will essentially exit the business by the end of the year, save for in-park efforts. As such, one could expect to see the Target program grow in size in the future.
And Amazon & Walmart?
No doubt either of the two biggest retailers in America is sitting still and watching all of this. Walmart and Amazon have yet to release a lot of details on their plans for this holiday selling season though both featured toys prominently in their big summer selling events. One should expect each to be back in the print catalog space, probably right after Labor Day, with major initiatives to snag product exclusives and as much inventory as possible to back up its assortment.
But for these two– and in fact for everyone in the toy business — that’s not going to be easy. In a new report, “Toy Industry Quarterly Report for the Second Quarter of 2021,” ResearchAndMarkets.com writes, “Despite historic early 2021 gains, 2021 will not be a replay of 2020 with its industry-wide double-digit increases. Chaos in the supply chain and inflation will subdue revenue due to product shortages.” The report says CEOs interviewed “anticipate retail price increases in the 25 percent range while supply chain challenges will continue through 2021 and will soften the final numbers in the 2021 4th quarter.”
Even more telling, a summary of the report points a finger specifically at one giant online retailer: “Toy companies across the board are unhappy with Amazon due to the high costs of business.” So, while we may not know everything that’s going to happen in toy retailing, we do know this: several players are stepping up their games and it is most certainly not child’s play.