So similar to last year, in fact, that it makes you wonder if a pattern isn't starting to emerge.
Instead of gutting it out over the holiday selling season and taking on the big-box competition, the traditional toy guys are resigned to stringing out their dirty laundry even before the holidays get started. From the point of view of the vertical toy merchant, who has no choice but to pander to the show-me-results-now folks on Wall Street, what better way to justify a poor showing in the fourth quarter than to blame it on the mayhem that preceded the holidays? You can almost hear them now: "Due to unforeseen circumstances brought on by consumer trepidation and the increasingly late demand for discretionary juvenile entertainment product, our results in the fourth quarter were impaired by strategic repositioning measures that resulted in strong, albeit lower-than-expected, results."
No matter how you try to spin the current malaise being felt by the toy industry, these once-mighty retailers are faced with a merchandising crisis of absolute biblical proportions. Forget eroding margins or a slip in comp-store sales. For companies like Toys "R" Us, the problems facing their business model today are tantamount to fissures in the very foundation.
When Toys "R" Us put its business on the selling block--the same business that once dominated an entire sector of retailing--the short list of bidders consisted primarily of real estate companies and investment bankers. That fact alone spells bad news for the future of TRU as a toy empire. It sends the clearest of messages to anyone actually contemplating saving the traditional toy model that the fate of the sector is a foregone conclusion. With all the talk throughout mass retailing about a dire need for more prime real estate sites to satisfy the growth needs of large-footprint companies like Costco, The Home Depot, Wal-Mart, Target and Sears, an investment today in Toys "R" Us is indeed a sound strategy--but as a real estate play, not a merchandising play.
That may be a cynical view of the traditional toy market, but it's a view no right-minded toy manufacturer can afford to ignore. And the smart ones are already taking action to find alternative avenues of distribution. They're carving out permanent shelf space in non-traditional channels like drug stores, supermarkets and warehouse clubs. They're cozying up to a consumer electronics industry that has successfully rebranded itself as the new destination for fun. And like their cousins in the trend-driven CE sector, who are unabashedly making a run at consumer-direct sales (think Dell, Apple and Sony to name just a few) they, too, have experimented in retail outlets of their own.
Now it's time to take those experiments to another level. Facing the prospect of losing a big chunk of total sales (both Hasbro and Mattel rely on Toys "R" Us for roughly 16% of their respective sales), the leading toy manufacturers would do well to expand their efforts in consumer direct. Hasbro could build on lessons learned (painful as they may be) from its Game Keeper stores, while Mattel could take its American Girl concept and make it the next pre-teen retailtainment destination in every major city in America.
Sure, the risk of failure is there. But now is not the time to be concerned about rolling the dice. With the world's largest vertical toy retailer facing a truly make-or-break season, its suppliers should be thinking more about saving the farm. |
