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Toys R Us Reenters the Market with a Unique Partnership

Written by Paul Banasik

November, 20 2019

News

Toys R Us has just reentered the toy market in partnership with one of the current leading specialists in the industry—Target. News of this partnership has sent waves of interest across the industry. However, having been gone for a year has taken its toll, and Toys R Us might just find the marketplace more competitive than it was when they left.

The aftermath of Toys R Us filing for bankruptcy is a classic example of the vacuum left behind when a major player folds.

Being one of the largest toy retail specialists, Toys R Us left a void in the toy category when it went bankrupt last year. Since then, three major names in the industry—Walmart, Amazon, and Target—have scrambled to hold a bigger share in the market. This holiday season, these companies’ bid for dominance is even tougher.

The upcoming holiday season is the second without Toys R Us playing the field, so big names are eyeing it as an opportunity to secure huge market shares.

Jaysen Gillespie, head of analytics and data science for Criteo, said in an interview that the toy market is currently fluid, but would most likely stabilize soon, especially after this holiday season.

He further noted that at present, toy shoppers are looking for an alternative to Toys R Us. In other words, the season could prove to be a great opportunity for other brands to win the preference of consumers by offering an amazing experience during the final quarter of the year.

That means you can expect fierce competition in the coming months as these brands vie for market shares and step into the void that Toys R Us left behind.

Even before declaring bankruptcy in the summer of 2018, Toys R Us took a hard blow from other leading retailers like Amazon, Walmart, and Target, who used the latest IT technology to beat the old giant on sales. Outdated IT technology cost Toys R Us the entire business, and toy-making companies who relied on this retailer specialist have suffered financially as well.

Statistics showed that sales for the toy industry  plateaued after Toys R Us went bankrupt. Recent figures, however, indicate a comeback, with numbers rising again after an all-time flat last year.

While the sales figures seem to be improving, many private toy companies are still reeling from the impact of the bankruptcy filed by Toys R Us. Some of these companies, which had previously reflected double digits on their sales sheets, now report losses.

The future of these toy companies remain doubtful, and it’s been a tough market without Toys R Us being the best go-to for any toy maker who wants to put their products on the shelf.

Chief Executive Officer Jay Foreman, of toy making company Basic Fun, relates that they are still trying to recover the losses they have incurred over the retail specialist’s bankruptcy. He notes that it might be easy for big toymakers to focus on growing their sales via Amazon, for example, but for small toymakers, this could be very difficult to do.

While the sales figures seem to be improving, many private toy companies are still reeling from the impact of the bankruptcy filed by Toys R Us. Some of these companies, which had previously reflected double digits on their sales sheets, now report losses.

The Aftermath of the Bankruptcy

 

Three big industry players have surfaced after Toys R Us went bankrupt—Walmart, Target, and Amazon. These companies took 15% of the market share that was left vacant when Toys R Us collapsed.

An e-commerce performance analytics provider observes that retail specialist Amazon has become the main go-to alternative for both toy and baby products for consumers who used to patronize Toys R Us. The next go-to brands being Walmart and Target.

These three big players have employed various marketing strategies to win the market over, and they’ve succeeded in getting bigger since then.

Walmart

 

Walmart, for example, has taken up a new branding, calling itself “America’s Best Toy Shop.” Statistics from the IBISWorld indicates that the company presently holds the largest share of the market at 23.1%, including the market for video games. This is a 3.5% lead compared to Amazon, which got 19.6% of the market share according to the report.

With the holidays just around the corner, Walmart has ramped up its marketing efforts, increasing the number of its exclusive toy products by as much as 25%. Not only that, this retailer has added 40 new toys from influencer brands, has reintroduced its National Play Day in-store events, released a list of “Top Rated by Kids” toys, and relaunched their interactive toy lab.

But Walmart has added more to its marketing strategies, with the company increasing their stores’ toy assortments by at least 30% and by 40% in their online store.

Mid-October saw another shift in their strategies, as Walmart decided to cut back on the prices of more than 200 toys—both online and in their brick-and-mortar stores. This meant over 400 discounted toys were made available right ahead of the holiday season.

In a blog post by Walmart, the company says that it is “committed to having the best prices on toys.” This massive rollback on prices has put the company at the lead.

Senior analyst Linda Bolton Weiser of D.A. Davidson & Co. notes that Walmart has taken a more sophisticated approach in terms of pricing this year. For example, it has put a higher price tag on hot toy items and paired it with lower-priced commodity toys. Its toy collection also allows for a more varied selection, with other lesser known brands making up 42% of stock. This means that it is not all Mattel and Hasbro toys on the shelf.

The wider range of toy selection from Walmart has helped increase sales, as kids passing by their shelves see new toys and add them to their wish lists. This strategy, which plays more on the kids’ desire for the things they see, has proved valuable for Walmart’s brick-and-mortar stores.

True, Walmart’s prices are a bit higher than Amazon’s, but the 1.7% price difference is not yet making a huge impact on sales, especially with many middle-class buyers still preferring to buy toys from a brick-and-mortar store.

In fact, both Target and Walmart have increased their market shares with the bankruptcy of Toys R Us, with many consumers of Toys R Us heading their direction instead.

Amazon

 

When it comes to online toy sales, there is no question about it, Amazon dominates the market.

Prior to the bankruptcy of Toys R Us, reports showed that Amazon held roughly 75% of all Mattel and Hasbro transactions online. That was a huge figure compared to Walmart’s 2.9% market share at that time.

Amazon also took most of Toys R Us’ market share, with a staggering 80% of online consumers preferring to buy similar products at Amazon instead. This figure is generally because Toys R Us’ toys were priced higher than its rivals online.

Projections from eMarketer puts Amazon’s toy sales at roughly 23% this year. Figures in the later part of October this year show that Amazon has 630 toy items exclusive to its online store, although the number has fluctuated since then.

To top that, Amazon is getting a larger audience online, as the majority of customers begin to make the shift from purchasing in a brick-and-mortar store to an online merchant. In fact, Profitero found that 77% of online searches for toys start at Amazon, indicating a huge potential for growth.

So although Target and Walmart capitalize on potential impulse purchases, the trend towards online sales is putting Amazon at an advantage over these two companies.

Target

 

Target is not letting Walmart and Amazon take all of the market shares, as it races to win its own hold on the market.

As mentioned in the outset of this article, Target has recently made a partnership with Toys R Us by relaunching its website, toysrus.com, marking one of two significant financial decisions that Target has made this year. Toys R Us website has gotten a makeover in return, with its Buy buttons linking to Target’s fulfillment website.

So now we have Toys R Us website containing customer reviews and interactive content, while Target’s website fulfills orders and manages the actual sales.

The move is proving to be clever strategy for Target, Gillespie, mentioned earlier, observes. With the tie-in, Toys R Us is now strategically sending consumers Target’s way. Compare that with how the company performed online before the relaunching of the toysrus.com website. Remember how Amazon got 80% of Toys R Us’ consumers? But the intriguing tie-in between Target and Toys R Us has worked to increase publicity for Target’s retail stores.

The second milestone for Target is its partnership with Disney, with Target creating 25 Disney toy shops to date within their physical stores. Forty more Disney shops are set to open in Target stores in the coming year. These toy shops feature about 100 Disney toy products that used to be exclusively available in Disney stores only.

Toys R Us’ reentry into the market has caused quite a buzz in the industry, but the company is now experiencing a tougher market. Current Toys R Us stores, two of which opened this year, have reentered the market at a low risk. That is because Toys R Us no longer purchases toys from the toy-making companies with the intent of selling them. Instead, they are currently selling shelf space to toymakers.

Their reentry into the market may just be in time, as consumers still haven’t fully recovered from the nostalgia of losing a popular brand in the toy industry. But time is of the essence for Toys R Us, as this brand nostalgia can fade over time.

Toys R Us’ partnership with a trusted brand, Target, has pushed its organic searches upward. Prior to teaming up with Target, toysrus.com was not even ranking on Google’s organic search results. The latest reports , however, show a huge improvement, but whether this will be enough for them to make a notable impact in the industry this year remains to be seen.

In Conclusion

 

The reincarnation of Toys R Us in a market dominated by Walmart, Target, and Amazon poses a challenge, especially to other companies vying for a market share. Today’s market may be fluid, but it can be tough for newcomers to carve a niche, especially if their marketing strategies have nothing to do with pricing or convenience.

What opportunities are there left for new names in the industry?

Gillespie notes that the best shot for these newcomers would be to “nibble around the edges,” so to speak, and take over what little share remains vacant in the toy market. Offering unique toy lines could work, so newcomers might want to consider focusing on a specific niche in the market instead of targeting the general market of toy consumers. For example, they could try focusing on selling toys that are made from natural and sustainable materials. They could also choose lesser-known niches such as wooden toys, and dominate those markets.

 Clearly, companies are not letting the big three names—Walmart, Target, and Amazon—scare them off the marketing game. In fact, it should be noted that companies such as Barnes & Noble, Five Below, J.C. Penney, Party City, and Kohl’s have reportedly expanded their businesses in the last year, making the market as tough and as competitive as ever.

Although these smaller companies are trying to make an impact on the industry through product differentiation, Amazon still beats them in terms of prices. Amazon can price below their costs, but the smaller companies cannot.

Given all these market details and trends, it can be said that Toys R Us are finding a more competitive market indeed. How they will fare in this new turn of events and with the recent partnership remains to be seen. 

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