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TOYS R US – UK – A LAMENTATION!

TOYS R US UK – A LAMENTATION!

Authors note – the following article refers only to Toys R Us in the UK. All fingers and toes crossed for Toys R Us in other countries!

The unthinkable has finally happened. Toys R Us in the UK has gone into administration & today came the news that all UK stores will be shut down.

http://www.bbc.co.uk/news/business-43401674

This news is genuinely upsetting 🙁 both in terms of the loss to the UK toy industry of a long term supporter and valued partner, and also emotionally, as the chain has been such a big part of the toy industry and therefore of our working lives for so long, along with the many fine peoplee working there – many for decades.

I remember first visiting the central Manchester (England) branch of Toys R Us at some point in the mid to late 80s. I’m not sure if it ever felt as magical as the oft played jingle suggested, but it was certainly a great place to go as a kid.

When I entered the toy business in the late ’90s, Toys R Us was the store you visited to see what was going on in the industry. Any of my old Hasbro colleagues would all know the Toys R Us just up the road from the Hasbro office in Hayes. Like many toy folk, I’ve always found it hard to pass a Toys R Us to check out what’s going on, to see products you worked on in retail or to buy samples for various reasons.

Let’s be clear though, as sad as the news about Toys R Us is, the show must go on! I’m buoyantly optimistic about the toy industry in the UK and elsewhere looking forward. Long term demographic trends i.e. growing population means we can look forward to more and more end customers for our products i.e. children. Moreover, practically speaking, it seems highly unlikely that many companies have a significant forecast for TRU UK in 2018, as we have had some time to get used to and to prepare for the possibility of this dreadful situation, and many toy companies learnt hard lessons from the seemingly unimaginable failure of Woolworths a decade ago.

Smyths could be the major beneficiary – in fact now we are where we are, I can openly admit that when walking through Smyths stores in the UK as they have grown so much in the last decade or so, I have often thought how they are doing a better job of being a modern day Toys R Us than TRU themselves were doing.  Critically Smyths seems to have found the right size store to offer full category support but without the excessive rent of a massive warehouse. I also expect to see The Entertainer continue to thrive – they have perhaps the cleverest business model in terms of a smaller space but with the ‘synergies’ of a chain. This smaller space can more quickly see stock rotated in and out reflecting the seasons, trend items and movies.

I’m sure others will also pick up toy demand in the UK and use this as an opportunity to grow. The much maligned and long under pressure independent toy retailers in the UK must surely see some potential to grow their business from this.

Furthermore, the movie slate gets stronger and stronger, and the options for content to drive toys have never been broader.

But right now the feeling is not happy. We can perhaps be forgiven for taking a moment to wallow in the sadness of this situation. The below pictures of TRU in Stockport were taken on one last visit to Toys R Us in the UK, and I wandered the half empty shelves with a maudlin feeling of regret and nostalgia, as sad looking staff tried to fill the half empty shelves.

The show must go on, and judging by the vibrant product displays of toy fair season and the surprise (to me anyway) smash hit success of Black Panther at the start of the year, 2018 is certainly not all doom and gloom for the toy industry. In fact perhaps surprisingly, the future looks bright longer term.

But we can still shed a tear for the failed icon of toy retailing that is Toys R Us in the UK 🙁

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 and to save $$$ by sourcing the best toy & game factories. Steve also advises investment companies via leading expert networks like Gerson Lehrman (Steve is an acknowledged GLG toy expert

Toys R Us – The Retail Growth Story Of The Next 5 Years?

Toys R Us – The Retail Growth Story Of The Next 5 Years?

 

One of the little reported facts pertinent to the media circus recently surrounding Toys R Us’ bankruptcy filing is that the companies over reported debt pile was primarily due to the ‘leveraged’ purchase of the business by investment firms. I am no financial guru, but as I understand it, the system we work in allows buyers to buy an asset i.e. a retailer like Toys R Us mostly via loans/financing secured by/put against the business itself.

I’m not going to pontificate about the rights or wrongs of this – reality speaks for itself. There are several notable examples of this type of transaction working (or at least not killing the business in question), but in the end the benefiting party is most likely to be the owners who risk the business itself to  pay off the loans. The business is then saddled with significant interest fees & repayment fees which can’t fail but to constrain development of the business.

Frankly, this is one of the most infuriatingly under reported aspects of Toys R Us’ tribulations – the underlying business is sound! Reporting an operating profit of $460m and EBITDA of nearly $800m in the last full reported financial year. Interest paid in the same financial year = $457m (!).

So to be categorically clear – there is nothing fundamentally wrong with this business! This is a business generating significant positive cashflow aside from the debt used to purchase it.

(please can any one of the hundreds of journalists who have covered this story with apocalyptic doom & gloom in the last few weeks please advise if I have missed anything fundamental here, or failed to read the financial results properly?)

I’d like to highlight the positives of the situation from the toy industry’s perspective and highlight why I believe TRU could become the growth story of the next 5-10 years in toy retailing:

Firstly, there is one positive reality likely to come directly from the TRU bankruptcy filing – the company is generally expected to emerge from Chapter 11 with significantly reduced borrowing, and therefore much less of a millstone around the neck of this toy industry flagship retailer.

Secondly, this will free up money to invest in the refurbishment of stores and growth plan.

Thirdly, the support of toy companies has been almost unprecedently loud and vociferous. Toys R Us is definitely ‘too big to fail’ as far as the major toy companies are concerned – therefore the company has much goodwill in terms of suppliers offering support of all kinds.

Fourthly, once the long term future & security of TRU is confirmed post Chapter 11, it should prove easier to expand further the global footprint.

Overall, the toy industry has shown it is unwilling to let TRU go to the wall. There aren’t many retailers which enjoy such nearly unconditional support. Viva 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).