Toys R Us: 30K jobs, toymakers wounded
NEW YORK — The demise of Toys R Us will have a ripple effect on everything from toy makers to consumers to landlords.
The 70-year-old retailer is headed toward shuttering its U.S. operations, jeopardizing the jobs of some 30,000 employees while spelling the end for a chain known to generations of children and parents for its sprawling stores and Geoffrey the giraffe mascot.
The closing of the company’s 740 U.S. stores over the coming months will finalize the downfall of the chain that succumbed to heavy debt and relentless trends that undercut its business, from online shopping to mobile games.
And it will force toymakers and landlords who depended on the chain to scramble for alternatives.
Toy companies, both big and small, will lose a place to test new toys. Toys R Us was a launchpad for emerging trends and toys, such as ZhuZhu Pets, which were the must-have holiday toy in 2008.
“Toys R Us was known as an incubator,” said Jim Silver, editor-in-chief of toy review site TTPM.com.
The toy makers will also have to find new places to sell their goods. The bigger toy makers — Hasbro and Mattel — will likely hurt at first, but then find their footing at Walmart, Target and Amazon, says Richard Gottlieb, a consultant at Global Toy Experts.
Toys R Us accounts for about 11 percent of Mattel’s annual sales and about 9 percent of Hasbro’s annual volume, analysts estimate. Both have posted lackluster financial results of late, and there was talk last year about the possibility merger between them.
But smaller toy companies will have a harder time. Silver believes they will be hurt more than Mattel Inc. and Hasbro Inc. since Toys R Us could account for up to 40 percent of their overall business.
And big stores, such as Walmart and Target, are less likely to sell smaller brands because they have less space to sell toys. Stephanie Wissink, a toy analyst at Jefferies, wrote in a recent note that small companies will explore selling themselves to survive. She thinks that Hasbro and Mattel will be best positioned to add more small- to mediumsized toy makers to their portfolios.
Given the chain’s issues, the closings aren’t a shock to landlords, and they’ve already been trying to line up possible tenants to replace Toys R Us over the past few months, said Katy Welsh, a senior vice president at the southern Florida division of the commercial real estate brokerage firm Colliers International.
But Suzanne Mulvee, director of research for CoStar, a real estate research of firm, said that 51 percent, or 450 Toys R Us’s stores are in shopping centers considered low-quality. So landlords could struggle to replace them with tenants at similar rates — or worse, they could remain vacant, she says. She says she also believes that matching the size of the box, which averages about 30,000 square feet, could be difficult as well.
“The sweet spot seems to be boxes that are under 25,000 square feet,” she said.
Still, as a well-known and long-lasting brand, Toys R Us may yet have a future — the company even quoted its classic jingle in its bankruptcy filings. And seemingly dead retailers have a way of coming back to life.
American Apparel, which closed all its stores last year after filing for bankruptcy, was revived by another company as an online-only clothing store. FAO Schwarz, which Toys R Us once owned, is opening shops inside department stores in the U.S. and China. And Sharper Image, which also shut its stores, now sells gadgets online and opened a New York pop-up shop during the holidays last year.