Toys R Us is mighty important to the toy industry so, this week, when I received an email from one of our toy industry thought leaders I took notice. He had read an article in the Wall Street Journal by Miriam Gottfried'. Entitled "5 Billion Reasons Toys ‘R’ Us Struggles as Amazon Soars", Ms. Gottfried makes the case that Toys R Us is simply being outspent in the race to acquire new digital customers. As a result, it and other bricks and mortar retailers, particularly those like Macy's that are carrying a heavy debt load, are struggling.
Why the concern? Well, according to Investor Daily writer, Shoshanna Delventhal: "While the Seattle-based online retailer [Amazon] saw its toy segment sales jump an impressive 24% versus just 5% for the overall market, once-market-leader Toys R Us has posted a disappointing five years of decline."
Gottfried points to Toys R Us's debt load ($5 billion) as a major problem. They simply don't have the cash to make the kind of plays that Amazon and Walmart are making. She points out that Toys R Us has over the last few years invested $100 million in enhancing its on line position. That sounds good but not when you compare it to Walmart spending $3.3 billion to purchase on line retailer, Jet.com.
Amazon and Toys R Us made a ten year agreement in 2000 that Amazon would be the exclusive portal for Toys R Us. Five years later that agreement fell apart with each going their own way. Amazon of course went on to become a major player in toys (and just about everything else) and Toys R Us had to find its own way on line.
Would Toys R Us have been better off staying with that deal?
I don't think so. Here is why: Knowing what we know now about Amazon, it is unlikely that they would have renewed. It is more likely that they would have used what they learned in working with Toys R Us to muscle their way into the toy business. Toys R Us, on the other hand, would have been left with neither a digital infrastructure nor a digital business culture at a point in time when online shopping was really taking off.
Don't worry, Toys R Us isn't going anywhere. Still, Toys R Us and the toy industry as a whole need them to find a way forward in a very challenging time for bricks and mortar retailers.