MORE TOYS R US TRIBULATIONS – UK DIVISION SEEKS CVA
After the drama and impact of Toys R Us seeking Chapter 11 protection in the USA, the current news that the UK company is now seeking a Company Voluntary Arrangement (CVA).
For more on the technicalities of this process/what it is & what it means, this is the best description we could find (thanks to good old Wikipedia): https://en.wikipedia.org/wiki/Company_voluntary_arrangement
The practical reality of this CVA appears to be Toys R Us wanting to aggressively renegotiate the leases for the old style warehouse stores, and to trim their store count/refocus on newer, most probably smaller stores.
Here’s our 5 key points on this:
- All stores seem set to trade through this Christmas, so we shouldn’t see a sudden gap in sales as we head into the critical December selling month.
- For full year 2018 we seem to have a risk of lost sales – as c. 25% of stores will be closing, and while TRU may have struggled to make these stores profitable, there is no doubt that they are/were still driving significant toy sales in terms of boxes shifted.
- On the more positive side though, if there is an existential challenge facing Toys R Us, then clearly the fairly radical surgery that is in the works could be a good thing if it redirects TRU down the right strategic path longer term. A short term blip is obviously the lesser of two evils versus the long term loss of this key flagship toy specialist in one of the Top 5 biggest toy markets in the world.
- Longer term, if the new strategic path works, then new store openings would be likely to follow rebuilding the sales volume via Toys R Us.
- While the toy industry critically needs the mighty Toys R Us, we should also take comfort from the fact that going back a decade or so, the loss of Woolworths (No. 2 in the toy market at that time) did not lead to catastrophy for the toy industry in the UK. In fact, there may be a valid argument in terms of Woolworths demise being healthy for the toy industry overall, with a significant portion of market share going to toy specialists like The Entertainer & Smyths who have grown significantly since then. So whatever happens, the UK toy business will continue to grow, but in the meantime let’s hope some short term pain can lead to longer term gain with Toys R Us!
by Steve Reece, CEO of Kids Brand Insight www.KidsBrandInsight.com, a leading toy expert consultancy to toy companies around the world, which helps people & companies to get ahead in the toy industry, find the right toy & game factories and to consumer research test their products with kids and parents. Steve also advises investment companies via leading expert networks like Gerson Lehrman (Steve is an acnowledged GLG toy expert).