20 February 2019
Online rivals, department stores and online games have combined to hit Toys "R" Us hard in recent years. Photo: hotukdeals
Online rivals, department stores and online games have combined to hit Toys "R" Us hard in recent years. Photo: hotukdeals

Toys “R” Us gets squeezed from all sides

It’s nothing new that physical stores have been hard hit by online rivals. One of the most affected type of retailers is probably those selling toys. While most of those street-side standalone top shops were gone, even the 69-year old giant Toys “R” Us is struggling to stay in business.

Toys “R” Us is reportedly looking for ways to restructure its debt, including the option of filing for bankruptcy protection.

Toy “R” Us started out as a children’s supermarket in Washington in 1948, selling baby strollers, furniture and feeding bottles.

Responding to requests from customers for baby toys during the post-war baby boom, founder Charles Lazarus decided to rebrand the company as Toys “R” Us and shifted its focus to selling toys.

At its peak in the 1980s, Toys “R” Us was considered a classic textbook example of a category killer, a business that specializes so thoroughly and efficiently in one sector that it pushes out competition from both smaller specialty stores and larger general retailers.

It still owns nearly 2,000 outlets across the world, and about 1,000 are in overseas markets. A small number of these shops are operated by franchisees.

Yet, the financials have worsened notably in recent years.

The toy retailer has suffered a cumulative loss of nearly US$1.5 billion over past four years. And it has a total debt of US$8.1 billion as of January, compared with total assets of US$6.9 billion.

As a result, Toys “R” Us has hired a law firm to help restructure its roughly US$400 million in debt due in 2018, according to CNBC.

Keen competition from three fronts appears to have pushed Toys “R” Us into the current crisis.

Online shopping is one major culprit. Sales revenue has started to fall since 2012, as consumers have switched to Amazon or Taobao for the cheaper prices.

Large department stores are also taking business away from Toys “R” Us. Although they may not carry as many types of products, leading retailers including Walmart, Macy’s, Target all have sharpened their offerings through careful selection (using big data, for example). And they are undercutting Toys “R” Us with lower prices, too.

The popularity of online games is also partly responsible for the difficulties Toys “R” Us is facing.

Children played LEGO, cars or Barbies 30 years ago; now they are more attracted to mobile games.

Is there a way out for Toys “R” Us? Perhaps the success of Jumpin Gym, a Hong Kong chain-style indoor playground chain, can offer some insights.

Focusing on interactive games that offer a totally different experience, the group has expanded over the years and is now running a network of 30 stores across the city.

This article appeared in the Hong Kong Economic Journal on Sept. 8

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist

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