Retail

Hasbro And The ‘Lost Year’ For Toys

The great Toys R us derailing of early 2018 will still be being felt as the year heads into its end game — particularly as toy-buying season begins in earnest in early November.

For retailers, this hasn’t been a terrible outcome, as most have had the better part of the last 10 months to prepare to up the level of their toy-hawking game by the holiday sales season. Walmart and Target have increased their shelf space, Party City has opened Toy City locations and Amazon is taking a page from the old Sears playbook by considering a toy catalog for the holidays. Even Buzzfeed is getting in on the act with a specialty toy store all its own in downtown Manhattan.

Throughout the retail reporting cycle, we’ve heard from a number of large and mid-sized retail chains that they expect to step in to compete in toys in a more meaningful way post-TRU, Jefferies analyst Stephanie Wissink said in a note to clients over the summer.

But while the fall of the house of Geoffrey has perhaps opened a new opportunity for retailers (and the off periodical) to move in on the opportunity to play Santa’s workshop this Christmas, the situation for brands that play the part of the elves building out all those toys has been somewhat less holly and jolly going into the upcoming sales season.

Hasbro, the world’s largest or second-largest of manufacturer of toys (the crown tends to move between Hasbro and Lego), has been hit particularly hard by the closure, as it relied on Toys R Us for 15 to 20 percent of U.S. toy sales last year. Target, its next-largest seller, accounted for about 14 percent of its sales in 2016.

And though retailers have said they are eager to fill the void left by Toys R Us, they are clearly not looking to emulate its calendar. Retailers have been waiting to place toys on shelves until closer to the holiday season, as opposed to Toys R Us, which began stocking its shelves for Christmas in early fall.

“These are real retailer reductions across our business and then certainly Toys R Us has some impact,” Hasbro CEO Brian Goldner said on an earnings conference call Monday — after the firm missed expectations on both its top and bottom line. Shares dropped 3 percent as a result.

Analysts — and the toy space as a whole — watching the results rolling in during 2018 had a somewhat more blunt take on the toy sales situation as it exists today, according to CNBC: “This is a lost year’ for toy industry and Hasbro.”

Hasbro and its fellows in the toy industry, however, are not quite ready to give up the ghost as of yet. Goldner noted in his call with analysts that demand for toys and games began to spike notably at the end of Q3 — though it was not fully reflected in their results.

“We were unable to meet all of the demand within the quarter,” Goldner said. “As a result, approximately $50 million of U.S. third-quarter orders shipped in the first week of the fourth quarter.”

Goldner also noted that 83 percent of customers who bought a toy during the liquidation of Toys R Us have already given that toy away, or plan to by the end of the fall. That means, he said, that customers are ready to come back, and the hope is, buy some goods at full price.

“So as we go through these transitions our underlying business is quite strong. Our brands are good. Consumers are very excited about what we’re doing,” Goldner said.“It’s just that again we’ve got to get through the disruption of the Toys R Us business and as, I mentioned, Toys R Us was largest for us in Q3 last year, followed by Q4.”

And, according to at least some experts, 2018 might turn out to be an unusually good year for toys sales after all, because of the nostalgia the Toys R Us closing has woken in consumers.

Toy sales were on the whole up 7 percent for the first half of the year, driven by consumers who were saddened that Toys R Us had closed.

“I am convinced that the strong toy industry growth so far this year has been at least partially supported by the empathy that people felt toward losing a store like Toys R Us,” said Juli Lennett, NPD’s senior vice president and industry adviser for toys in a statement. “I think it brought about an emotional response that resulted in parents buying more toys overall.”

Will those emotions last through this holiday season?  It seems there are some retailers  betting on it — and some brands counting on it.

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