Quantcast
Featured Image

Never count a good giraffe down?

After going bankrupt and closing all its stores in the United States, Toys R Us/Babies R Us has emerged under new ownership with a plan to not only grow its remaining international locations but to make a comeback in its home U.S. market as well. The new company, Tru Brands, will be led by the chain's former Chief Merchandising Officer Richard Barry who will now serve as CEO.

Tru Brands isn't a traditional start-up. It controls global assets that delivered over $3 billion in sales in 2018 through more than 900 stores and e-commerce efforts in 30-plus countries  across Asia , Europe , Africa,  and the Middle East . The chain has a much lower profile in the U.S., which was limited to some grocery-store kiosks during the last holiday season. Still, the company does have high name recognition among parents and still has more than 9.5 million followers across social media channels, according to a press release.

A joint Toys R Us and Babies R Us store

Toys R Us has a new owner that wants to make a U.S. comeback. Image source: Tru Kids Brands.

Where does the market stand?

The death of Toys R Us put about 19% of the U.S. toy market up for grabs (roughly $4 billion a year). That's a significant market opportunity and a number of players tried to fill the void during the holiday season. Most notably, Target (NYSE: TGT) and Walmart (NYSE: WMT) expanded their toy sections from Thanksgiving week through Christmas and Amazon (NASDAQ: AMZN) created a digital toy circular to promote its offerings.

Barry believes that there's still space in the market for brands dedicated to toys and baby products.

"Despite unprecedented efforts to capture the U.S. market share this past holiday season, there is still a significant gap and huge consumer demand for the trusted experience that Toys R Us and Babies R Us delivers," he said in the press release. "We have a once-in-a-lifetime opportunity to write the next chapter of Toys R Us by launching a newly imagined omnichannel retail experience for our beloved brands here in the U.S. In addition, our strong global footprint is led by experienced and passionate operating teams that are 100% focused on growth."

That sounds nice but the revived brand enters a market that has largely compensated for is absence. Mattel , for example, saw sales fall by 5% in the fourth quarter and the company claimed an 8% negative impact from the loss of Toys R Us. Rival Hasbro 's numbers were worse as sales fell 13% in Q4, some of which the company blamed on Toys R Us liquidation sales. That, however, was not the only reason for the drop as the company also mentioned the lack of a new Star Wars movie as hurting its sales.

Is there a need?

It's fair to say that some of the market share Toys R Us once commanded has gone to Walmart, Target, and Amazon. Winning that back with a new chain of stores is easier said than done when all three major rivals will enjoy a pricing advantage and, in the case of Walmart and Target, toys can be low-margin sales or even loss leaders that make it easier for parents to get their kids to go shopping with them.

Overall toy sales were down 2% during the holiday season, according to CNBC . That suggests that most of the Toys R Us business has gone elsewhere -- largely to Walmart, Target, and Amazon most likely. That means this new version of Toys R Us enters a market where there's limited need.

The new owners do understand that new stores need to be more interactive, giving consumers a better reason to visit than "we have toys." Barry clearly understands how epic the task of bringing the brand back in a meaningful is. He has made it clear that everything -- stores, pop-ups, even partnering with Amazon -- remains on the table.

That's a smart acknowledgment, but Toys R Us bankruptcy left a hole that was quickly filled by retail's brightest stars. Competing with Walmart, Target, and Amazon when Toys R Us had an entrenched network of stores was a challenge. Starting from scratch -- against competitors eager to make sure the dead stay dead -- may be an impossible task.

10 stocks we like better than Walmart Inc.
When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, Motley Fool Stock Advisor , has quadrupled the market.*

David and Tom just revealed what they believe are the 10 best stocks for investors to buy right now... and Walmart Inc. wasn't one of them! That's right -- they think these 10 stocks are even better buys.

See the 10 stocks

*Stock Advisor returns as of January 31, 2019

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Daniel B. Kline has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Hasbro. The Motley Fool is short shares of Hasbro. The Motley Fool has a disclosure policy .



The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of NASDAQ, Inc.

Related Articles