What the Toys ‘R’ Us Bankruptcy Means for the Toy Business

Toys R Us

Toys ‘R’Us is a big box toy retailer that has recently struggled to keep the doors open with a debt of $5 billion. The company has recently filed for protection under the chapter five bankruptcy laws, but the news isn’t all bad. The question in everyone’s mind is, “what does this mean for the toy industry?” We’ve gained some insights into the economics and status of the situation to share with you. Here are the predictions that may shed some light on the economic situation faced by major toy manufacturers:

Issues behind the Toys ‘R’ Us bankruptcy

The giant toy retailer has amassed their debt due to the intense competition that they face from online companies that sell the same products, often at a discount. Online retailers can capture a sizeable share of the shopping clientele because they offer hassle free convenience. Amazon.com is one of the more popular online retailers that offers good deals and fast shipping for its’ prime customers. The chapter 11 that was filed by Toys ‘R’ Us is for protection from debtors as the company re-organizes and gets business affairs in order. This allows them extra time and room for working with creditors, allowing them the flexibility that is needed during this challenging financial time.

Time for restructuring

The struggling toy retailer has not previously had the capital to invest in the changes that are needed. For example, the Wal-Mart corporation maintains a chain of bricks and mortar stores, but has also built an online presence for customers who prefer to use this format for making purchases. The bankruptcy will allow Toys ‘R’ Us more flexibility in debt repayment as they merge into a more customer demand oriented line of services. The execs of the company realize that to stay in business, they must keep up with current trends in consumer demand. They plan to reinvest in the business to develop a more competitive edge over the stiff competition

What does this mean for the toy industry?

Those who have not yet made the transition to include online shopping options will be faced with a difficult decision. It’s expensive to add the feature and it does require a restructuring, especially for larger retailers, but the current statistics show that shoppers are going to take their business to online formats, particularly when there are better deals available, and ordering can be done from home at the touch of a button. Those who add the online component are more likely to succeed, and those who do not may encounter the same troubles that Toys ‘R’ Us is going through now. The worldwide marketplace has undergone some very drastic changes in the past decade.

What’s happening now in the industry

Toys ‘R’ us is just one of 18 similar companies who have filed for chapter 11 bankruptcy protection since the start of the year. It’s going to be an uphill battle for the big box toy store, but the managers in charge of operations are hopeful that the retailer will be able to complete the restructuring as needed, offer products that are the most in demand, and do so with the addition of mobile and online ordering. The store has plans to keep its’ more than 1,600 stores open. They’re fully stocked and ready for the upcoming holiday season.

There was a rise in U.S. toy sales in 2016, up 6% over the previous year according to the NPD Group Inc, market research company. The release of multiple block buster movies is believed to be a contributor to the change. It’s important to look at the year in terms of the first half which represents everyday sales, and the holiday months, which include an onslaught of activity. The first half of 2017 showed a three percent rise in sales, which means that retailers are hoping for at least a 4.5 percent rise for the latter half.

Two of the largest toy makers in the country have been forced to lay off part of their work force due to decreases in profits. Lego, Matttel and Hasbro all suffered from low second quarter sales. Toys ‘R’ Us plans to continue with their online sales as well, during the holiday season. It’s tight for toy companies right now, and it’s difficult to predict what is going to happen next. Consumer demand will dictate which companies thrive and which begin to wither. Those who keep up with the current trends for products and services are likely to have the best success.

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