Having been in business for more than six decades, it’s fair to say that Toys ‘R’ Us was at some time a childhood playground for everyone. However, in recent years, a number of industry changes, coupled with severe financial difficulty, has left Toys ‘R’ Us behind the competition and struggling to make ends meet. As a result, the toy giant recently filed for bankruptcy protection in order to make it through to the end of the year.
What went wrong?
In 2005, Toys ‘R’ Us was subject to a private equity takeover worth $6.6bn. Since then, it has failed to keep up with the times and has allowed its debt to balloon from $2bn to a peak of $6bn. In the same period of time, online retail sales have grown exponentially from $2.7bn a year to over $12bn. It is not hard to miss the growing importance that online retailing plays for all businesses, but it appears that Toys ‘R’ Us has failed to keep up with the trend.
Estimates suggest that more than 40% of children now own an electronic tablet and this fast access to social media means that trends for toys are changing faster than ever. A recent example is the fidget spinner which seemed to become a global phenomenon within a matter of weeks. Online retailers, such as Amazon, are equipped to quickly adapt to this increased demand, but giants like Toys ‘R’ Us don’t have the capacity to roll out products as quickly.
What does the future hold?
This isn’t to say that Toys ‘R’ Us has been on a downward trajectory for a while. In fact, sales for the toy retailer actually hit their peak of $13.9bn as recently as 2012, at which time online retailing already represented a formidable force. The problem is that many toy suppliers have recently lost faith in the ability of Toys ‘R’ Us to be able to fulfil payments for incoming orders. The Christmas period represents 40% of Toys ‘R’ Us’ annual sales and is crucial for its ongoing success. At this time, they order in 4 times more products than normal and as such need a lot of money to back up their purchases from suppliers. The $2bn loan will serve as a means to maintain these payments and prepare for the holiday season.
Beyond that, it is unclear as to the exact direction the company will head in. With recent news of this bailout, many large toy suppliers including Mattel, MGA Entertainment and Spin Master have rallied behind Toys ‘R’ Us and have made clear their ongoing support for the toy chain and hopes for its abilities to adapt to the new toy retailing age in which it now lives.