Eyeing Toys R Us' Future, Analyst Suggests Hands-On Displays
ARI SHAPIRO, HOST:
So far this year, more than a dozen big retailers have declared bankruptcy, including household names like The Limited, Payless and Gymboree. Today, Toys R Us joins that list. The company's bankruptcy filing is hundreds of pages long, and it begins with the lyrics to a jingle that was a staple of 1980s TV ads.
(SOUNDBITE OF SONG, "I DON'T WANNA GROW UP, I'M A TOYS 'R' US KID")
JENNY LEWIS: (Singing) I don't want to grow up. I'm a Toys R Us kid.
(Singing) They've got a million toys at Toys R Us that I can play with.
SHAPIRO: Jim Silver is a toy industry analyst who runs the toy review website TTPM. Welcome to the program.
JIM SILVER: Nice to be here.
SHAPIRO: I know Toys R Us had a lot of debt from a buyout in 2005, but is that the only reason for the company's fall into bankruptcy, or is there something larger going on here across the retail industry?
SILVER: No, it's a multitude of reasons. This goes back to debt that started in the late 1990s, went through the 2000s. They spent a lot of money poorly - whether it be their new offices in Wayne, N.J., which costs millions, the Toys R Us Times Square store, which lost money every year. Then they parted ways with amazon.com, and they didn't invest in the digital business.
And as online went from about 4 percent of the toy business to about 30 to 35 percent of the toy business, they were left behind Amazon, Wal-Mart and Target. So Toys R Us needed to find a better reason for people to come to the stores January through October. They came during the holiday season, but they weren't coming during the first nine, ten months during the year.
SHAPIRO: You said that 30 to 35 percent of toy purchases are online.
How does that compare to other retail?
SILVER: It's actually higher than a lot of other parts of retail. Because toys are bought as a surprise for a child, you don't bring them to the store, especially during the holiday season or for their birthday. Therefore, with all the research you can do online, there's no reason to go to the store.
SHAPIRO: Now, Toys R Us says it's going to leave its stores open. But from what you're saying, it sounds like without some major changes to the way the company functions, people are not going to be coming into those stores.
SILVER: Well they still look at their stores - they were making, in terms of EBIDA, about $600,000,000 a year. It's just that the debt was too deep. But they do have to make changes during the first 10 months of the year. They've added Claire's in some of their stores. They've added an American Girl in about 100 stores.
SHAPIRO: Claire's and American Girl - these are sort of store within a store that have certain specialties, earrings or dolls - things like that.
SILVER: Right. It's a special section. But Toys R Us needs experiences if they're going to keep these same-size stores.
SHAPIRO: Are kids using toys in a different way now than they used to? I mean, I see kids playing with tablets, where if you want a new toy on the tablet, you just download an app. You don't actually buy a thing.
SILVER: The play patterns are similar to 20, 25 years ago. They've just been updated with technology. You know, the toy industry's been up the last couple of years. The construction toy category, until this year, had doubled over the previous 10 years. Activity toys are up. Board games are way up. And the toy industry's done a good job of bringing technology and toys with augmented reality toys, with radio-controlled toys. So that really wasn't the problem. The bigger problem, especially for Toys R Us, is bringing the consumer into the store during the first 10 months.
SHAPIRO: What does this mean for toy manufacturers? Stocks fell today for Mattel, Hasbro and other toy makers.
SILVER: Well, immediately, stocks fell because a healthy Toys R Us means a healthier Mattel and Hasbro. So, obviously, the Street was nervous.
SHAPIRO: Ten years from now, could you imagine Toys R Us looking anything like it does today?
SILVER: I think it has to change. I really think if it's going to remain this size, you need those experiences. If I'm a child, I would love to demo a toy. I would love to go to Toys R Us and have Nerf displays. They should have a better area for kids to come in, get on a bicycle. A bicycle for a child's not something you're really buying online - but you need to do in-store. And there are these opportunities. They just have to do a better job for the future within Toys R Us.
SHAPIRO: Jim Silver is a toy industry analyst and editor-in-chief of the review website TTPM. Thanks a lot.
SILVER: Good talking to you.
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