2018: A YEAR OF CHANGE The Toy Industry Moves Forward Without Toys “R” Us by SEAN MCGOWAN, managing director, Liolios Group AS THE TOY INDUSTRY GOES THROUGH fall previews, it’s hard to overstate how much changed in just one year. Let’s review the impact of Toys “R” Us’ departure, and discuss some of the other factors that will affect the industry over the next 18 months. At this time last year, the industry was reeling from the fresh news that Toys “R” Us (TRU) filed for bankruptcy protection. In early September, the story broke that TRU hired lawyers to explore a bankruptcy filing, triggering fears that a filing was imminent. These fears were realized within weeks, setting off a stampede among companies trying to secure critical vendor status to bolster their prospects for getting paid for 2017 sales and be able to secure good prospects for 2018 sales. Barely six months later, the chain’s liquidation was underway, effectively inflicting the most damage on the very companies that were deemed the most critical. These companies found themselves in the position of effectively being forced to make shipments on which they
“In a year that has seen tax cuts, rising consumer confidence, a booming stock market, rising home values, and modest inflation, it’s not inconceivable that parents simply bought more because they liked the prices, but will buy even more as the holidays approach.” increasingly doubted they would collect. Now that the other shoe has fallen through the floor, everyone is forced to confront the new reality. Among the industry’s largest manufacturers, especially the publicly traded ones, there is a sense that perhaps the situation isn’t as bad as they feared. No one was happy about it, but assumptions were so dire that sales declines that were not as bad as expected were greeted with a cheer on Wall Street. Spin Master actually grew sales in the first half, and Funko didn’t even mention TRU in its second quarter earnings conference call. For smaller companies, the impact was pretty negative, and they don’t have the relief of being able to say, “Well, at least our stock price didn’t go down that much.” Some companies are scrambling to find capital, others have signaled their willingness to be
acquired, and others simply retrenched and hunkered down. We haven’t seen a massive wave of consolidation among toy makers, but sometimes it takes more than a few months to see the impact of these traumas. The NPD Group reported that industry sales grew 7 percent during the first half, but it’s hard to parse out the impact of the TRU liquidation sales. Clearly, deeply discounted prices had some positive impact on total sales, and did not merely shift sales to TRU from other retailers. But did these sales come at the expense of sales that might otherwise have come later in the year? Has the industry, in effect, pre-sold holiday gifts? One could make the case that budget-conscious parents would be inclined to take advantage of big sales and squirrel away purchases in the spring to gift later in the year. But we all know that kids often don’t
24 THE TOY BOOK | SEPTEMBER/OCTOBER 2018 | toybook.com
know what they want for their holiday gifts until right before they get it. Any parent knows there is a certain amount of wishful thinking that goes into buying holiday gifts too far in advance. And in a year that has seen tax cuts, rising consumer confidence, a booming stock market, rising home values, and modest inflation, it’s not inconceivable that parents simply bought more because they liked the prices, but will buy even more as the holidays approach. What is also unclear is what exactly will be the outcome of the giant scramble to capture the sales lost by TRU. Last year, we saw retailers such as Kohl’s, JCPenney, and others grow or establish toy sections in their stores. This year, we can add Best Buy and Five Below to that list, as well as Party City, which recently opened approximately 50 Toy City pop-up stores (read more on page 34).
