Rough year for last season’s Christmas Elves
Toys “R” Us Holiday Sales Report Disappointment
Following the 70 year-old retailer’s fall into corporate bankruptcy
Last Christmas season, many of our “Santas” around the world may have found it particularly harder to buy toy presents from physical retailers like Toys “R” Us.
As American toy retailer, Toys “R” Us reaches its 70th anniversary in a few months, the company is feeling the pressure of becoming as antiquated.
With encumbering pressures from bankruptcy and with seemingly incessant drops in sales, the toy mongol is may soon be kicked out of Santa’s workshop.
The Big Bankruptcy Break
Due to the rise in eCommerce enterprises, the toy retailer was forced to file for bankruptcy protections after defaulting on its debts in September.
The company filed for Chapter 11 bankruptcy protection in the U.S. on September 18, 2017, and has also filed for bankruptcy protection in Canada.
Before filing for bankruptcy, the company had been weighed down by roughly $5 billion in debt, stemming from a leveraged buyout last decade led by Bain Capital.
Their net sales fell to approximately $2 billion, down $89 million from last year, and the operating loss widened to $208 million from $40 million.
Since their bankruptcy filing, Toys “R” Us Inc. has been considering closing at least 100 U.S. stores in the face of recent weak holiday sales, according to people with knowledge of the situation.
The retail chain has been committed to recovering from their losses in the 2017–2018 holiday season, but things have not been looking too positive so far.
Weak holiday results threaten to complicate the retailer’s plans to get its finances in order and emerge from bankruptcy with an improved balance sheet.
The holiday season is where 75% of all annual toy sales occur — the key to their recovery. However so far, their U.S. Christmas shopping sales have declined 15% from a year earlier and have not been looking to rise anytime soon.
The Dominating Competition
The main contributor to the decline of Toys “R” Us sales is the rise in eCommerce sources that severely outdated the almost 70 year old retailer.
Many consumers are seen to be moving towards these eCommerce companies, most prominently Amazon, for their juvenile product shopping.
Toys “R” Us Chief Executive Officer Dave Brandon had acknowledged these market changes, recognizing that the recent falls in sales “demonstrate the continued challenges we face in both the baby and learning categories,” Brandon said in the company earnings statement.
“We recognize the need for change in order to better meet customers’ ever evolving shopping preferences.” – Toys “R” Us CEO, Dave Brandon
However, drops in business sales have also been attributed to the relentless competition from other, more diversified warehouse retailers.
Retail analyst and consultant Nick Bubb thinks that Toys R Us’s warehouse-style shops are working against the company.
“The main problem is simply that the stores are too big and unwelcoming,” he told the BBC. “they have tried a few smaller, mall stores, without much success, perhaps because the store format was too boring.”
CEO Brandon had also shared his thoughts on tackling the growing competition, a roster that includes names like Target, Wal-Mart and Amazon.
“Toys “R” Us would have needed to slash prices to maintain traffic into its stores, decreasing its revenue and cash flows in an unrelenting race to the bottom,”
What does this mean?
The recent prospects of Toys “R” Us closing down hundreds of locations also hits another blow to the retailer’s biggest suppliers, including Mattel Inc. and Hasbro Inc.
So far, shares belonging to both corporations fell to session lows on last Monday, December 18th. Mattel dropped a full 4.5% to $14.78, while Hasbro showed a 3.2% recess to $91.02.
Other toy retailers, particularly LEGO and Build-A-Bear Workshop, have both seen losses this year as well.
Future Speculation
In retaliation to the underperformance of sales so far in this holiday season, the company has tried to push their online e-commerce efforts and calm their suppliers in an attempt to recover.
Toys R Us has continuously made a loss in seven of the past eight years.
A few days ago the retailer also tried to reassure shoppers that all its stores will remain open into the New Year, and there will be no changes to its refunds and gift cards policy, including their “Take Time to Pay” scheme.
Operations in Europe and Australia, licensed stores and joint venture partnership in Asia, which are separate entities, are not part of the Chapter 11 filing.
However, most business analysts predict a downward line of performance, and speculate Target as the top candidate to win over Toys “R” Us’ lost customers’ dollars, according to UBS analyst Michael Lasser.
“There is a chance that Toys R Us could be out of business in the next two years entirely in the United States,” said Stephanie Wissink, a consumer products analyst at investment bank Jefferies LLC. “My fear is that they are not selling goods to a consumer that values that experience.”
Overall, the market will most likely see a continuing decline in Toys “R” Us market performances but with the new year approaching, the toy retailer may be able to seize or create new opportunity to recover.
