For a retailer that is preparing to shutter all its U.S. stores, Toys R Us still has a lot of fans.
There are plenty of places consumers can shop for toys — that’s part of the Wayne, N.J.-based chain’s problem. But none of its mass-market competitors generate the same nostalgia for a toy emporium that was a family destination as well as a place to shop.
“No one wants to think of a world without Toys R Us,” said Rick Woldenberg, CEO of Vernon Hills-based toymaker Learning Resources.
Toys R Us announced plans to close all remaining 735 U.S. stores, including 31 in Illinois, on Wednesday. About 200 top-performing U.S. stores could be saved if the chain succeeds in selling its stronger Canadian business, but in the meantime, it plans to move ahead with the liquidation.
The uproar over Toys R Us’ financial distress isn’t just about its iconic status. The retailer still accounts for an estimated 15 to 20 percent slice of the U.S. toy market — an unusually large share for a company seeking to go out of business.
It remains enough of a heavyweight that even some competitors are wary of a world without Toys R Us kids.
Local toy retailers worry manufacturers could raise prices or shrink selection or that the absence of Toys R Us will make it that much easier for shoppers to shift toy purchases online. How big the impact will be depends on where the customers who shop at stores that are closing take their business. Toymakers, meanwhile, are worried about losing a retailer that stocked a wide variety and took chances on newer products.
Peggy Sebert, who owns Becky & Me Toys in Evanston with her husband and daughter, said independent toy shops already work together by pooling orders and calling around to find a competitor who can help them when a customer’s desired item is out of stock.
“We don’t want our competitors to go either, because if people don’t know there’s a good bunch of stores around, I fear the answer will be more online (shopping),” Sebert said.
When Toys R Us sought Chapter 11 bankruptcy protection in September, it appeared optimistic about pulling off a turnaround. But disruption from the bankruptcy hurt U.S. holiday sales, which were “well below worst case projections,” the retailer said in a bankruptcy filing.
“I am very disappointed with the result, but we no longer have the financial support to continue … U.S. operations,” Dave Brandon, Toys R Us Chairman and CEO, said in a news release.
Toys R Us is struggling with hefty debt load, much of it stemming from 2005 when three investment firms took the company private in a leveraged buyout. But like other traditional bricks-and-mortar chains, it has struggled to adapt as consumers increasingly left big-box chains that specialized in a single type of product for the convenience of online retailers like Amazon and one-stop-shop mass merchants like Walmart and Target, which also could compete fiercely on price.
Retail sales at stores specializing in traditional toys and games, like Toys R Us, fell 5.7 percent between 2016 and 2017, according to data from Euromonitor International. The firm forecast sales of traditional toys and games themselves would grow about 2.2 percent over the same period.
No one expects Toys R Us’ shoppers to stop buying toys. The industry may lose some spur-of-the-moment purchases, but about 85 to 90 percent of the chain’s sales came from shoppers on a mission to buy a specific toy or gift, said Stephanie Wissink, managing director and consumer products analyst at Jeffries.
Amazon and Walmart, which have seen growing toy sales, will likely pick up the biggest chunk of Toys R Us’ business, Wissink said. Other retailers might compete more selectively, with stores like Kohl’s and J.C. Penney carrying more toys around the holidays and retailers like Best Buy and GameStop expanding their selection of electronic toys.
The Toys R Us closures could create more “toy deserts,” areas without any toy-specific stores where shoppers can get advice on items that are a good fit for a child’s age and interests, said Kimberly Mosley, president of the Chicago-based American Specialty Toy Retailing Association.
The association is trying to help its smaller independent retailers market themselves to local customers as places where shoppers can still touch and feel toys before buying and get knowledgeable advice, Mosley said.
With Toys R Us set to shrink significantly or shut down altogether, some of those independent shops will have to decide whether chasing its sales means changing the types of toys they carry.
Geppetto’s Toy Box in Oak Park carries few products made by big-name brands like Mattel, Hasbro and Nerf that are widely available at other stores. Specializing helps the store stand out, said Eric Masoncup, who owns Geppetto’s with his wife. It’s also tough for a small shop to compete with bigger chains’ prices, he said.
Masoncup said he might consider bringing in a few new products, but he wants Geppetto’s to stay true to its niche.
“I’m a specialty toy store; I’m not a mass toy store,” he said.
Masoncup and Sebert, of Becky & Me Toys in Evanston, also said they’re waiting to see whether the disruption to toy manufacturers trickles down in the form of higher prices or fewer new products.
For toymakers, Toys R Us’ decision to close U.S. and U.K. stores knocks out a major path to get their products in front of shoppers. Toys R Us doesn’t just sell a lot of toys, it stocks a wider range of items than retailers where toys account for an aisle or two.
Initially, that’s likely to hit big companies like Lego, Hasbro and Mattel, which do a lot of business with Toys R Us, more than small toymakers that rely on specialty retailers and online sales, Matthew Hudak, senior toys and games analyst at Euromonitor International, said in an emailed statement. But over the long term, small companies could have a tougher time reaching a national audience if the big players compete even more fiercely for the remaining shelf space in national chains.
Small toymakers often start in independent shops, move up to Toys R Us and from there make the leap to chains like Walmart and Target, Mosley said.
“It’s the smaller guy that can’t get shelf space at Walmart who’s going to be hurting,” said Brian Kujawski, a partner at Chicago’s Big Monster Toys. Big Monster designs toys and games such as Uno Attack and the Batbot Xtreme, a Batman-themed robot, and licenses them to manufacturers, so it’s a step further removed from Toys R Us and more insulated from the bankruptcy and store closures, Kujawski said.
Since online shelf space is unlimited, smaller brands with a hit product could have an easier time getting their product in front of customers, though online retailers also tend to have slimmer margins, said Wissink, the Jeffries analyst.
Woldenberg, the Learning Resources CEO, said Toys R Us has been a very good customer that gave the Vernon Hills company’s toys good placement in its section for educational products. Learning Resources makes simple toys like doctor’s kits and pretend cash registers, alongside coding robots and building sets with spinning gears.
Toys R Us secured financing to keep its business going while it attempted to restructure, and Learning Resources continued to fill orders. But recently Toys R Us has missed payments, Woldenberg said, and Learning Resources is asking the bankruptcy court to force Toys R Us to pay for about $881,747 worth of products.
“We’re very frustrated by the situation, and hope they’ll think clearly about their obligations and responsibilities,” he said.
If Toys R Us goes away, Woldenberg said he’s confident other retailers will compete for business it leaves on the table. But each retailer Learning Resources supplies — Toys R Us included — only sold a fraction of the company’s full range of products.
That’s why Learning Resources is working to adapt and build awareness of its own brand, regardless of what happens to Toys R Us.
“We can’t be dependent on any one outlet. If we’re to meet our mission of inspiring a love of learning, we’ve got to get to those kids one way or another,” Woldenberg said. “We’re just doing the best we can to ride the waves and get our products out there.”
At least one Chicago-area toymaker found the ripple effects of Toys R Us’ woes could be unexpectedly far-reaching.
Northfield-based Neat-Oh International thought it was in the clear when Toys R Us filed for bankruptcy. The chain had been planning to buy one of Neat-Oh’s toys — Zipes Speed Pipes, with remote control vehicles kids can race through pipe-shaped tracks — but not until this year.
“We didn’t have any open orders we were awaiting payment on, so we thought we were going to be OK,” said Dee Farrell, senior vice president and co-owner at Neat-Oh.
But one of Neat-Oh’s key factories gets the overwhelming majority of its orders from a major toy manufacturer that does a lot of business with Toys R Us. For Neat-Oh, that was part of the appeal — bigger toy manufacturers have high standards when it comes to quality and safety.
It also left the Hong Kong-based factory in a panic about replacing lost business when the bigger toymaker cut back in response to the Toys R Us bankruptcy, Farrell said.
The factory was worried enough about the state of the U.S. toy market to contemplate a switch to producing small appliances for consumers in China, she said.
Neat-Oh sent employees to meet with factory leaders in Hong Kong in November and reassure them that, despite Toys R Us’ struggles, Americans are still buying their kids plenty of toys. But the factory’s distraction made it tougher to work with and it began seeking faster payment, Farrell said.
“They are still very unsettled, and it has hurt us,” she said.
Neat-Oh had been planning to aggressively expand distribution of Zipes outside the U.S. this year, but it’s now being a little more cautious while it looks for ways to shift at least a portion of the factory’s work to new suppliers, Farrell said.
“We’re going to find a way; that’s what we do,” she said. “But we did not see this coming.”