Wednesday, June 26, 2019

Toys 'R Us "Reimagined": What will be different this time? Or, is this another investor scheme to milk the asset?


This is what Geoffrey looked like a couple of months ago. Now reports state that he has found a new home and master. Bloomberg reports:

"About a year after shuttering U.S. operations, the remnant of the defunct toy chain is set to return this holiday season by opening about a half dozen U.S. stores and an e-commerce site, according to people familiar with the matter."

Wow. How and why? We don't really believe it is because of the opening line in the article, do we?

"Maybe American kids will only have to live through one Christmas without Toys “R” Us."

More likely, this is the reason:

"This group tried to sell the intellectual property, but opted to keep it to garner a better return. As owners of the intellectual property, they have been collecting licensing and other fees from the units still operating and selling them private-label goods. "

Greedy Investors played a large part in killing Toys 'R Us the first time (see my article....), so no surprise they can't let the dead rest in peace. 

What we need to understand is, will they succeed or not and why?

Here are some of the facts/questions that need to be asked:

1. Consumers have moved on- not since it has been gone, but much before that- so why would TRU figure in their shopping plans next holiday when they just can buy it from Amazon or Walmart BOPIS (Buy Online, Pickup In Store)?

2. Buying online takes away from the experience for the kids? As a former kid, I can say that the real experience is when you have that toy in your little hands...

3. Smaller Store Size?It is said that the new plan foresees stores of 10,000 square feet which will be focused on "events." The old stores were 30,000 to 70,000 square feet. So now we plan to cram inventory and happy, active kids in a store 1/7 the size?

4. The new plan includes an ecommerce site-This to compete with Amazon and Walmart. We know that there are TWO main paradigms for online success, a la Amazon: 1. Price 2. Selection.
So, what is the chance that the new TRU will:
            a.Reduce prices to compete with Amazon and Walmart?This decision is not very likely to be made by investors (who will be running the company despite who they put in front) that are already losing money and have taken a risky investment to recover it;
            b.Be able to afford a bigger (I doubt if better) selection than Amazon and Walmart?So, who wants to bet on this one?

5. How much credit will the industry extend to the revived TRU? How many vendors will decline to sell to them at all? At best, this will be very restricted. Toy suppliers have suffered due to the expiration of the old TRU, and they will almost certainly want to put their money on a winner.

6. How much will Prime Day take out of the holiday toy business? Don't underestimate this- Now Prime Day is not just an event for Amazon, it is an event for the entire US ecommerce world. And this year it will doubtless be bigger than ever. If you are a Mom or Dad trying to compile an impressive Christmas Tree, you will be laser focused on the Prime Day toy bargains. So TRU could open into a market that has already spent a chunk of its Christmas Toy money. 

Conclusion:

There is no doubt that the US market, especially the toy market that has not changed in years, is open for disruption. That being said, there is no indication that the new TRU will do anything disruptive, much less enough to get noticed.

This is more likely an attempt to get the last milk out of the cow before putting it out to pasture. Is this cynical? I would offer that it is just reality that either nobody is facing, or they are just not telling...

2 comments:

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