The absence of Toys "R" Us has presented an opportunity to the remaining retail market, despite years of problems growing revenues, Toys “R” Us still left a nearly USD5 billion prize pool, creating more immediate incentives and greater tactical opportunities for retailers to earn a greater stake of the traditional toys market and stave off the inexorable rise of e-commerce.
The only channels with positive share growth in the last 10 years have been internet retailing and hypermarkets, indicating that price and product variety are the two most important aspects of deciding where to shop for toys. However, several channels will face opportunities and challenges in capturing these toy shoppers that were once loyal to Toys “R” Us.
Source: Euromonitor International
Regardless of how successful stores are at getting a piece of the Toys "R" Us pie, internet retailing will continue to grow. With more options than physical stores can provide and customer reviews to help narrow those options, people are choosing the convenience of digital commerce for their toy shopping, especially when prices are competitive, and shipping is low cost. While retailers of all stripes will have opportunities in this channel, it is Amazon that is best positioned. However, one of the key factors of Toys “R” Us’ appeal was experiential, something internet retailing will be hard pressed to fill.
As the current leading channel in toys sales, hypermarkets have the most to lose. A lack of proactive movement could see them lose position amidst the velocity of digital retail, but they have plenty of chances to fight back. Turning their stores into destinations could provide children and parents a place to try before they buy, filling in the experiential void that Toys "R" Us leaves behind. Some of this will happen naturally, but without a marked effort to increase traffic, many might shift their shopping online.
Mass merchandisers appear to be in a decent spot, but their model is under pressure. Their lack of grocery options is a headwind to increasing traffic, and the internet is making their model seem obsolete for the distribution of non-food products. It will be up to mass merchandisers to become more important to their core shoppers (e.g. urban professionals, young parents). To do this, they will need products across several categories that fit these shoppers’ purpose-driven and top-up trips. Toys fulfil the former for holidays and birthdays.
Toys and hobby shops
Toy shops are poised to undergo the most change, which makes considerable sense when you consider that the largest by far (80% of the market) has irreparably failed. To thrive, look at toy stores that have found success, such as LEGO’s store efforts, which rely on strong brands and highly interactive stores. Toy megamarts of the past are unlikely to come back. Toy stores of the future will be more intimate, focused and experiential.
One channel we expect to make the most of the rest of this gap is variety stores. Dollar stores can offer the most attractive prices on simple items and is a growing channel for a large portion of rural America that does not shop online as much. This channel also includes Five Below, a small but fast- growing concept focused entirely on fun, child-friendly products that cost no more than five dollars.