Lessons for the Toy Industry in a Post-Toys R Us World

In March 2018, we learned that “I don’t want to grow up, I’m a Toys R Us kid,” would be heard no longer—retail giant Toys R Us announced it plans to sell or close all 735 of its stores in the U.S.

While it may seem that Toys R Us is another casualty of retail in an Amazon-dominated market, in reality, troubles had been brewing for the company for quite some time. In September 2017, Toys R Us filed for bankruptcy hoping to shed billions of dollars in debt and reinvest in its stores. Yet after a disappointing holiday shopping season, the retailer was never able to rebound.

The devastating news sent shockwaves through the toy industry, with shares of Hasbro and Mattel falling 3.5% and 7% respectively. Even popular toymaker Lego reported its first sales drop in thirteen years. While large Consumer Products companies have been stocking their products at big box stores like Target and Walmart for some time, they could struggle to promote anything except their most popular items due to heightened competition for limited shelf space.

And the news is particularly devastating for small toy companies. As a retailer solely dedicated to toys, Toys R Us was able to take its chances on small companies and up-and-coming products, unlike Walmart and Target who only have a few aisles dedicated to toys. Analysts tell CNBC that they expect to see mergers and acquisitions of small toy companies due to this reality.

What can the $84 billion toy industry learn from the demise of Toys R Us? Here are four top lessons that can help toy companies—both large and small—win in today’s competitive environment.

Customer Experience is Everything

Yes, retail is struggling today as more and more customers enjoy the convenience of shopping online. But that doesn’t mean that retail is dead completely. The key is having an innovative in-store experience that offers something you can’t find online. Entrepreneur and toy marketing executive Marc Rosenberg told NBC News, “The best way to sell a child a toy is to let them try it. You can only do so much online. If you don’t have that touchpoint, you’re really losing an opportunity to sell.”

However, the Toys R Us in-store experience left shoppers to wander aimlessly through aisles upon aisles of shelves with little to no employee help. Toys R Us hoped to add new amenities like augmented reality, play rooms, and birthday party spaces to their stores—but their crippling debt never allowed them to make these investments.

For toy companies looking to partner with retailers, this means they need to think through their in-store experience to help draw the customer in. What will make their display stand out from the competition? Is there a special event that can be held in-store? What will we train store associates to say about our products? Answering these questions will be key to creating an in-store experience that gets shoppers off the couch and into the retail space.

Ignore E-Commerce At Your Own Peril

While the in-store customer experience is crucial, that doesn’t mean toy companies should ignore the online space completely. Like most retailers, Toys R Us lost business due to the convenience of Amazon’s low prices and free shipping.

Jay Foreman, CEO of the toy company Basic Fun!, who owns the K’nex brand among others, believes he has an amazing opportunity to expand business with online retail. K’nex aggressively added its products to Amazon and increased its marketing spend, and as a result Amazon is now K’nex’s number one account. In addition, K’nex will be looking to Target, Walmart, and JC Penney’s e-commerce sites among others to sell its products.

For other toy manufacturers, this means thinking through diverse e-commerce partnerships and regularly measuring results to see which accounts see the best return. In addition, toy companies should make sure to invest in their own e-commerce sites and other digital marketing strategies like paid search and social media ads in order to see an increase in sales from their owned channels.

Be Nimble to Stay Ahead of Trends

Mattel’s sales during the holiday season dropped 12% from a year ago, led by underperformance for the Fisher Price, American Girl, and Lego competitor Mega Bloks brands. On one hand, CNN reports this is due to the rise of video games and other high-tech toys that kids are playing with instead of dolls and board games. Yet Foreman says novelty collectibles—like Fingerlings, LOL dolls, Star Wars, and Black Panther toys are current hot items.

Toy manufacturers should look to new mediums and platforms, like interactive toys, to respond to changing technology. Yet they should also examine their supply chain and the ability to pivot and make changes quickly when certain categories are underperforming based on the ever-changing trends in the industry.

Win the Talent Wars

“Better employees make happier customers,” Toys R Us CEO David Brandon said. Unfortunately, that realization was too little too late for his company. Due to low unemployment, competitors like Walmart raised their wages, while Toys R Us failed to reward and keep their top-performing employees.

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Article by: Brooke Miller