The liquidation of Toys “R” Us Inc. has sent the toy industry reeling, leaving Mattel Inc., Hasbro Inc. and other manufacturers without a large chain devoted to selling games and dolls and forcing them to scramble to secure other outlets to carry their items.
Toys “R” Us, which had more than $11 billion in revenue in its latest fiscal year, is one of the retail chains that were once seen by vendors as “category killers” and have emerged as crucial checks on the power of Amazon.com Inc. Stores like Best Buy Co. and Barnes & Noble Co. provide electronics manufacturers and book publishers with vast networks of physical showrooms.
The likely death of Toys “R” Us, which early Thursday filed plans to liquidate its U.S. operations and other businesses, means the $27 billion U.S. toy industry will no longer have a national partner to showcase its wares year-round, test products and find the next Shopkins or ZhuZhu Pet.
It was a quick unraveling for Toys “R” Us since its September chapter 11 bankruptcy filing. In a call with employees Wednesday, Toys “R” Us Chief Executive David Brandon described a series of events, starting with what he described as a “devastating” holiday season that led to plans to close more stores and then to exit from the baby-products business to focus on toys.
Ultimately, the company is expected to liquidate its U.S. operation, a decision that would affect 33,000 jobs. The company also is liquidating operations in other countries, and plans to sell its business in Canada, Central Europe and Asia.
“This industry has been devastated,” said Tom Murdough, founder of Simplay3 Co., which makes plastic play sets and ridable vehicles. “This is a major, major hit to the industry.”
In five decades of selling toys, Mr. Murdough hasn't known a day without Toys “R” Us. He founded and sold both Little Tikes Co. and Step2 Co. in the past and he now is the CEO of Simplay3, which he said gets between 20% and 30% of its sales through Toys “R” Us.
Toy makers don't anticipate recouping all of their sales this year, or ever, if Toys “R” Us goes away permanently without a replacement. UBS estimates that Hasbro would lose close to 3% of its sales for the year if Toys “R” Us liquidates, while Mattel stands to lose slightly more.
Hasbro CEO Brian Goldner said the maker of Nerf blasters and My Little Pony dolls is looking for new places to take its inventory.
“There will be some disruption, more short term than long term, and then we move forward with growth,” Mr. Goldner said at an investor conference this month.
The toy-industry growth rate could slump going forward, too. Toys “R” Us was primarily responsible for uncovering what would become the next big thing, since it took chances that other retailers avoided. “There aren't going to be as many breakout hits, not as many new items that can blossom,” said BMO Capital Markets analyst Gerrick Johnson. “Toys 'R' Us was a testing ground for a lot of things.”
Toy sales may be concentrated in the other two large retailers, Target Corp. and Walmart Inc., in the near term.
Some toy companies have expanded their presence in unexpected places in recent years, so the blow isn't as bad as it might have been when Toys “R” Us held a larger share of the market. Jeremy Padawer, co-president of Wicked Cool Toys, the maker of Cabbage Patch dolls and Pokémon toys, says that not only has Amazon.com become a bigger part of its business, but sites like Zulily.com, retailers like Hallmark and even grocers and drugstores have become options to sell its toys.
What Toys "R" Us owed key vendors when it filed for bankruptcy on Sept. 19, in millions
BY PAUL ZIOBRO AND LILLIAN RIZZO