| |
Ever wonder what goes on in the toy industry?
I don't have all the answers, but I can tell you the toy industry is changing rapidly. The premier toy company
F.A.O
Schwartz filed Chapter 11 Bankruptcy (BK) January 13, 2004. The next day,
privately owned KB Toys filed for Chapter 11 January 14, 2004. KB moved
to close some 375 stores nationwide.
Two major toy companies that have operated for many years have ran against bigger players in the industry.
On August 24th, 2004, there was talk on Wall Street that the world's second largest toy retailer, Toys R Us (TRU) may consider a spin-off (make
a separate company) of its popular Baby's R Us unit and sell its toy division.
What did you say? Toys R Us may sell its toy division? What would be left? Um, nothing but baby toys unless someone
else wants to run a billion-dollar
toy business with marginal profits plus assumption of billions of debt.
And after seeing FAO and KB go BK, who would want to buy TRU?
Why would TRU want to exit the toy business? FAO, KB and TRU have a tough time competing with the likes of Walmart
and Target who both have reached critical mass in selling not just toys but 1000's of other items.
Walmart has incredible buying power that few can compete with. If Toys R Us exits the toy business, it would be
a windfall for Walmart, and Target.
Internet toy retailers would also stand to benefit with the elimination of a 3rd major competitor. Why?
Aside from the reduction of access to major toys retailer, Internet retailers tend to have less overhead, and lower
operating costs that the brick and mortar stores.
Internet retailers can operate more efficiently, offer greater customer service and may specialize in particular
products or a line of products.
Internet retailers may carry inventory of particular items desired by the public, where retailers such as Walmart
and Target tend to focus on the latest toy trends. They don't market to collectors, they market to the masses,
and their primary business is not toys. |
|
|
TRU's issues have become more complex as internet retailer Amazon.com is apparently trying to end its relationship
with TRU.
TRU filed
suit against Amazon for allowing other retailers to sell toys on Amazon's
website. TRU argues that it has an exclusive agreement to sell toys on
the Amazon platform.
TRU sells toys, about $11.5 Billion in 2003. The costs of shipping from overseas, trucking to retail outlets has
become expensive, primarily related to higher fuel costs. The result can make profit margins tighter, especially
when dealing in the primary market toy business.
Last year, Target sold some $48 Billion in total retail sales, and the retail mammoth, Walmart managed to reap
some $258 Billion in total retail sales. Walmart and Target can afford the higher fuel/ shipping costs since they
sell more than just toys, and sell more higher profitable items.
|
Internet toy retailers would also stand to benefit if Toys R
Us sells off its toy division.
|
TRU's annual sales have not changed much since the year 2000.
For the Internet, on-line sales have show significant increase. Total online sales were estimated at $100 billion
in 2003, up 42% from 2002 (Source).
TRU has lots of physical assets - retail store space. Selling off stores could raise millions as it did for K-Mart.
As part of K-Mart's bankruptcy reorganization, K-Mart agreed to sell some of its stores to Home Depot for a reported
$271
million.
See the Latest Story (03-24-2005) |
|
|
