Margins of error …it’s John Baulch’s Friday Blog!

Our most-read story of the week concerned the closure of German retailer While this is partially testament to the global nature of our online readership (half of our online readers now come from outside the UK market), it also reflects how closely toy communities across the world are connected. The ripples from an event like this reverberate across Europe and maybe even beyond.

Those who know the German market far better than I have estimated that Mytoys had around a 10% share – so that’s the equivalent of Argos announcing it would be closing down as a standalone business and a scaled back operation would be subsumed into a larger, more diverse portfolio where it would survive, albeit with far less of a footprint than before, but crucially making a profit instead of a loss. Hang on….

Anyway, I digress. For me, the most interesting point was a rather blunt line in the statement announcing Mytoys’ closure: “In the highly competitive and low-margin toy market, the current multichannel concept is no longer viable.” Well, that doesn’t pull any punches, does it? Lots to unpack there…

First and foremost, it offers a glimpse behind the curtain as to how some cross-category retailers perceive the toy market. In itself, this is hardly a revelation: it’s pretty much an open secret that Amazon feels the same way – I have heard suggestions that there are people within the Amazon operation who would gladly drop half of their top 40 toy suppliers, as they don’t feel they make sufficient margin out of them. What it does show is the disparity between what toy suppliers feel is a reasonable margin for a retailer to make, and what the retailers themselves think.

Way back in the 80s and 90s, the relationships between the major retail accounts and toy companies was often fractious, with margin being at the heart of the debate. That dialogue hasn’t generally felt as heated in recent years, but I get the impression that it is about to get lively again. The big difference this time round might be the way the discussion is conducted: I gather that Amazon is expected to lay off around 15% of its vendor managers across Europe this year. The one-to-one fiery negotiations of the past are likely to be replaced by a very different mode of dialogue.

The very fact that Amazon is in the process of closing warehouses and laying off people suggests that it needs to boost its margin and cut its costs. On that basis, it’s not likely to look favourably on partners that are not offering what it perceives to be a fair margin. Talking about the Mytoys closure this week, one supplier suggested to me that it gave them a new understanding of the margin position adopted by retailers like The Entertainer.

Allegedly, Mytoys had never made a profit since its inception. Locals had referred to Otto as “the parent, while Mytoys was the child spending all the money its parent made.” An interesting analogy, if true – and Otto may well not be the only parent company looking closely at areas of the business that aren’t making any money and deciding it’s time for a change.


Leave a Reply