Toy Blog

503, 2019

New York Toy Fair Review and Projections

March 5th, 2019|Categories: About Toy Jobs|Tags: , , , , |

The annual toy industry migration from Hong Kong to London to Germany finally reached its inevitable end at The New York International Toy Fair. All reports were that the outlook for the industry in 2019 gathered optimism and enthusiasm as the trade show season moved along.

The New York International Toy Fair opened with the TOTY Awards. A terrific event, as always, which was this year again held at the venerable Ziegfeld Ballroom. There was a big, buzzy crowd in attendance as companies vied for various Toy of the Year Awards.

TJ – Isaac LarianOne highlight was the Doll of the Year Award which went, unsurprisingly, to L.O.L. Surprise! The award was accepted by Isaac Larian of MGA who approached the podium and said – the least he ever has. It was a comically gracious moment…only to be later ruined when he climbed the stage out of turn and out of line to display his usual boorish behavior. That said, let’s give credit where credit is due – both under the byzantine TOTY process and by popular acclaim L.O.L. Surprise! garnered three TOTY’s and was the overall Toy of the Year. Mattel and Lego also had good nights as they each came home with three TOTYs.

TJ – Joe Burke

I always enjoy seeing smaller and up and coming companies win these awards so it was good to see wins by Zing and Tastemakers. The Rookie of the Year Award went to Victury Sports. This startup makes the OllyBall which can be played with indoors without breaking lamps, mirrors, and cherished family heirlooms. Just think about how much trouble we wouldn’t have gotten into as kids! Do Play Ball in the House!

Amongst the three new members inducted into the Toy Industry Hall of Fame was Joe Mendelsohn, former president of Kenner Products. In the 1970’s and 80’s, Kenner Products was The company. They had a fun Ideation and Product Development Group, professional Marketers, the toy industry’s best Engineering team and a rogue’s gallery of affable Sales talent. They came up with new and exciting product year after year after year. When the crowd gave Joe Mendelsohn a long standing ovation I took it to be a standing ovation for the entire Kenner Products team.

TJ – Crystal Palace Crowd

On Saturday, we moved on to the Toy Fair proper and the much dreaded Javits Center floors (hardest floors on the planet). In contrast to last year, day one was high energy and crowded. Strong attendance as well as optimism and excitement continued through the show’s end. Kudos to Steve Pasierb and his team and to the TIA Board for putting on a strong and productive show as well as the top notch TOTY event.

TJ – Show Floor 1

On Sunday night, anybody and everybody could be found at the Wonder Women in Toys Awards. I don’t know the official numbers but is it possible that this event was even more well attended than the TOTYs? Genna Rosenberg and her team did their usual exquisite job planning and pulling this thing off. The entire group of ladies making this show work do it while seeming so serene although I suspect they must be paddling like crazy underneath.

TJ – Marian BossardA shout out to Marian Bossard of the Toy Industry Association for winning the Wonder Women of Sales Award. Marian is one of the key people making all of the toy industry’s tradeshows and events go as smoothly as possible for the rest of us. Congratulations to all of the Wonder Women. As an employment expert, I suggest regularly wearing your pink capes to the office around salary review time!

One of the few negative undercurrents of the show was the question of “what’s going on with Toys ‘R’ Us?” As best as I can tell, they are going to continue on as an asset light IP company. In other parts of the world, they have licensed out their name to retail operators who will open and manage stores. They are looking to initiate the same type of arrangement in the U.S. They will also have an online retail entity which they will presumably either run themselves or partner on with their bricks and mortar licensee. TRU is also of the opinion that they have valuable product IP which they can sell to other retailers. Personally, I don’t think that the world is exactly clamoring for FastLane or Animal Alley. I suppose that they will sell in (saddle with) that merchandise to their retail partner.

After being so badly burned, will manufacturers actually do business with TRU? After all, Toys ‘R’ Us has the same ownership and largely the same management. Many have told me that it has been beyond difficult to see Richard Barry swanning around at Toy Industry events. Will they be able to just clean the slate of retail leases and then like a gang of deadbeats stiff their suppliers? To make matters worse, they then went out and sold their suppliers unpaid for merchandise at a discount, hindering said suppliers from selling their own goods elsewhere. Trust has been completely broken. It will not be repaired easily – perhaps ever.

I’ve heard many in the toy industry say that they won’t do business with Toys ‘R’ Us. That said, while I don’t know how many stores will be opened, I can’t see many toy companies not wanting to sell in to 50, 100, 200 doors. Perhaps one toy industry exec put it best when he told me: “I’ll be happy to do business with them depending on who their retail partners are and whether they have deep enough pockets to pay their bills.” Even so, I expect that they’ll be kept on a tight leash with short payable terms and little acceptance for chargebacks and the games they used to play in the warehouse.

What does this all mean for upcoming toy industry hiring? I am broadly optimistic. 2018 holiday sales numbers were not as bad as they could have been and the government statistics on retail sales seem to be a bit wonky. The negative government data, which was partly gathered during the partial government shutdown, looks to be at odds with strong retail sales numbers reported by Mastercard and by many individual retailers. It was also in complete disagreement with sales numbers reported by Amazon.

TJ – Crowd Pic

Much of the toy industry has made adjustments and is finding their way through a rapidly changing retail environment. After all, kids still want toys, we just have to find different ways (plural) to get those toys in front of them. The largest toy companies (Mattel, Hasbro, Lego) will not be able to readily replace the sales lost at Toys ‘R’ Us. They will now be big companies growing off a smaller base. Small fry beware! The big fish are stodgy and slow moving. It will take a couple of years but when they figure it out (and they will), they will be tenacious.

Meanwhile, this is a great year for kids movies like Frozen, Toy Story 4, Lego 2, etc. which will drive product demand. Fortnite is really only just getting started. The toy industry has pent up hiring demand. Over the last two years there have been so many lay offs that many companies are now having difficulty just getting the work done. Lastly, it looks like we have dodged the tariff bullet – at least for now. We are still waiting to see if happy talk turns into treaties, but we should be cautiously optimistic that we are going to evade a trade war.

In early January, all of these factors led me to cautiously predict that about two to three weeks after the New York Toy Fair, when companies finished crunching their numbers, that my phone would be ringing off the hook, with toy companies looking to increase staffing. That would be right about now.

What actually happened is that immediately after returning from Hong Kong, toy companies started calling. They were not only looking to fill jobs but Big Jobs. Last year, companies were occasionally looking for Project Managers/pairs of hands on the lower end of the salary continuum. This year they are looking for senior executives. This tells me that toy companies have left their defensive crouch and are now looking for opportunities to make things happen. I am broadly optimistic on toy industry prospects for 2019 – with the caveat – that we must dodge the Trump tariff bullet – which at the current time it looks like we will but…

All the best,

Tom Keoughan

2801, 2019

Conditionally Predicting Increased Toy Industry Hiring

January 28th, 2019|Categories: About Toy Jobs|Tags: , , |

For 2018 the big story in the toy industry hiring was the closing of Toys ‘R’ Us. Almost every toy and juvenile product manufacturer lost its second or third biggest customer. That meant that most of these companies cut their budgets while they went out in search of new channels of distribution. Reduced budgets usually means reduced headcount and nearly always means a slowdown in new hiring.

Are toy industry hiring trends poised to turn the corner? 2018 holiday sales overall were strong, rising 5.1%, excluding autos, according to Mastercard SpendingPulse. Online sales grew even more quickly at a whopping 19.1%. Of course, there were retail winners and losers. Macy’s, Kohl’s, and J.C. Penney performed poorly while Wal-Mart, Target, and Costco hit it out of the park. Wal-Mart and Target could have performed even better but they were running out of inventory during the last two weeks of the holiday shopping season, which coincided with a surge in foot traffic.

These numbers represent retail sales of ALL goods but what of the toy industry? I’ve heard all sorts of whisper numbers that US toy sales were down 7% or even 15%, but the most recent numbers that I’ve heard were that US toy sales declined 2-3%. At the same time, nearly all of the senior executives at small and medium-sized companies that I have spoken with have said that their sales either grew or that they were happy with their 2018 results. That leads me to believe that the bulk of the lost sales were suffered by the big toy companies like Mattel, Hasbro, and Lego, etc. After all, if a small toy company can add a couple of extra feet of shelf space at a Best Buy or a Cracker Barrel, that can be pretty meaningful. For a Mattel, it doesn’t even move the needle.

I see 2018 as a transition year and look for the toy industry to gain traction and move forward in 2019. We have several things going in our favor. First, the economy, although it might grow at a slower pace than last year, is still forecast to be strong. Only a few months ago, predictions were that the Fed would raise interest rates four times this year. Currently, interest rates are projected to only be raised a time or two. Employment continues to be super strong. Both factors support an economy that continues to grow.

Cautious ordering in 2018 means that retailers have little inventory carrying over going into this year. This bodes well for sales early in the year and also minimizes manufacturers being held up for mark-down money and diminishes retailers’ need to have blow out sales. In addition, we have a plethora of strong licensable kid’s movies coming out this year led by new Frozen and Toy Story films. That should mean strong sales for licensors and also translate to better sales for all as blockbuster properties drive increased shopping for kid’s products.

That said, there are two potential problems which could disrupt growing toy sales. First, we are still early in the 2019 toy trade show season. Reports that I’m getting are that the mood in Hong Kong was buoyant although not quite jubilant. We shall see how retailers react to toy manufacturers wares at Nuremburg and in New York.

Secondly, there is still the specter of Trump tariffs on Chinese-made goods looming on the horizon. Recently most of the chatter about resolution has been trending toward positive, with the exception of the Huawei imbroglio. I would imagine that we’ll end up with face-saving half measures where all sides are able to declare victory OR further postponements which unfortunately means further uncertainty. As the big orangey fella often says, “We’ll have to wait and see.”

If we’re able to dodge a trade war then I see a strengthening toy industry investing in new talent to help drive growth. A lot of pent-up demand has developed over the last two years as toy companies have tightened their belts to the point of them becoming tourniquets. As companies come out of their defensive posture, somebody has to have the ideas and somebody has to do the work. My outlook is – as it usually is – one of cautious optimism.

I look forward to seeing you all in New York!

Tom Keoughan

412, 2018

Toy Industry Walks Through the Fog of Uncertainty

December 4th, 2018|Categories: About Toy Jobs|Tags: , , , , , , , |

Most toy industry executives are telling me that while they certainly would have preferred to still have Toys “R” Us as a viable entity, that they have mostly replaced the shelf space and think that the year will turn out alright. That said, they want to make sure that they are on firm footing before they start investing in additional staff. They would like to put behind them the uncertainty of whether new product placement equals new sell through.

The good news is that consumers still want toys. We just have to figure out how to best get those toys in front of them and make them take notice. From cell phones to video games to WhatsApp to Fortnite to over scheduling by parents: kids have a lot more things competing for and dividing their attention than the days when we would just go out and play. To complicate things further, the array of choices is changing at an increasingly rapid pace. The challenge for Marketers is how to get their wares noticed on a increasingly pixelated and changing pallete of potential diversions.

At the same time, the retail landscape is undergoing revolutionary change. E-commerce is booming but physical stores still do the bulk of consumer sales. Buy online and then get in the car and drive to the store to pick it up is also increasingly popular although for the life of me I can’t imagine why. Manufacturers have to figure out how to best operate in this changing environment. Complicating that further is that you can’t just change from A to B. The retail formula is changing constantly and more rapidly all the time. The only certainty is the ever-increasing velocity of change.

Thus far, the holiday shopping season appears to be off to a strong start. Foot traffic over the Thanksgiving weekend was down somewhat but retailers began offering deals earlier which pulled some sales forward. The Black Friday weekend is still a good indicator but consumers are broadening their shopping window so there is much less of a pronounced spike.

black friday

In the meantime, online sales have been exploding with approximate growth of 25% over the long Thanksgiving weekend plus Cyber Monday. We should expect a strong holiday sales season. The economy is humming, and the consumer is flush with lower unemployment, lower taxes, lower gas prices and as of the last few months higher wages. Event more importantly, the consumer is willing to spend. Top line numbers for retailers should be strong but profit margins for retailers of all stripes may be challenged by higher labor costs for brick and mortar locations and higher freight costs for items purchased online. Retailers may be willing to pass some of these cost increases on to consumers, but it is likely that for the larger portion they will be looking toward vendors.

While the overall holiday sales environment looks quite positive despite potential back end shearing by retailers, there is another big concern for toy manufacturers. That is a potential Trade War with China. As of now, it appears that Xi Jinping and the Trump Administration have made small concessions that permitted each other face saving gestures and agreed to a temporary cease fire.

trump xi pic

That allows toy manufacturers to breathe a little easier for now but kicking the can down the road doesn’t alleviate uncertainty. In ninety days, when a full agreement still hasn’t been reached, tariffs on the $200 Billion of goods now set at 10% will be increased to 25%. The good news is that toys, as it stands now, still will not be affected. Unknown is what happens next. How long will the next negotiating window be? What will the consequences be if a deal is still not reached? Most likely, the next step of tariff escalation will include the toy business. Will the toy industry be able to ship goods for the holiday season of 2019 by, let’s say, June 1st? Especially, when you realize that vendors and retailers may be at cross purposes. Manufacturers will be trying to ship products as early as possible to try to beat the clock while at the same time retailers tend to try to postpone commitments to buy as long as possible.

trump -china

If there is any kind of silver lining in this fog uncertainty, it is that the toy industry is more agile and better equipped to navigate uncertainty than most other manufacturers. After all, even in a year that is all blue skies and smooth sailing (and I can’t remember that ever happening) we are in a seasonal fashion business. Turbulence is our middle name. We are used to it.

My view is one of cautious optimism – but that’s pretty much my default setting. Things tend to work out… eventually. The worry is how long will it take.

Crossing the River by Feeling the Stones.

Tom Keoughan

 

1710, 2018

Dallas Fall Toy Preview AND The Zombie Awakens

October 17th, 2018|Categories: About Toy Jobs|Tags: , , , , , , , |

View More: http://clarkcabus.pass.us/toy2017

Day one, morning at the Dallas Fall Toy Preview was mostly grumbling as exhibitors complained widely that: “This place is empty.”, and “There’s nobody here.” Indeed, the main floors on 12 and 13 looked like a ghost town. I found it much busier down at the 4th floor Diverse and McManemin showrooms. That’s likely because with twenty to thirty companies crowded into each space there was a much higher population density.

Activity had picked up by evening and interestingly there seemed to be more people at the Tuesday night cocktail party than there were in the building all day. This led me to quip: “if they want to increase attendance, maybe they should serve beer.”

By Wednesday afternoon, the sentiment had changed. Most exhibitors I spoke with were saying “We had really good meetings”. Several companies stated that while they could skip the show and just travel to all the different retailers, they like that fact that with the Dallas showroom space they could put their entire line of product offerings on display.

It was good to see several TIA Board members actively starting discussions and eliciting feedback about the future of the show. As usual, there was talk of moving the show to Los Angeles. There are two insurmountable problems with that. First, the large LA based companies don’t really want their nimbler competitors around trying to “distract” retailers with their often more creative wares. If the show was moved to Los Angeles in an attempt to consolidate what has turned into four October trade shows, then the big LA based companies would simply change their dates thus defeating the whole purpose.

Second, a lot of companies have opened showrooms in El Segundo but they can be anywhere from a couple of blocks to a couple of miles apart which necessitates leaving the building and often getting into a car and dealing with LA traffic. I seemed to be the only who thought that could be solved by running a continuous string of shuttle buses. Then the real answer came out. “Buyers don’t like it. They don’t want to travel from block to block and building to building.” That’s it. Retailers are the ones we want to attract and convenience. If we want to change the Dallas format in in such a way as to attract more buyers, we can’t do it in a way that they have already told us they don’t like. For the time being, at least, LA is out.

Company owners told me they like Dallas because it is convenient, it’s centrally located, and both travel and hotels are relatively inexpensive. They also like the ability to put their entire product line on display. Their complaints were: “More Buyers”, and that renting booth space was very expensive.

From where I stand, I like the show as it currently is. I can fly in and stay in an inexpensive hotel and spend two days meeting with fifty toy company owners and Presidents because they have a lot of free time on their hands. That’s great for me but I’m acutely aware that y’all aren’t having the show for my benefit. If the show doesn’t make financial sense for toy manufacturers, then it will cease to exist. So, here’s my two cents on possible ways to improve the show for my clients:

  1. More Buyers. It was great to have Wal-Mart, Wal-mart.com, Target and Target.com in attendance but booth space is expensive so if more mid-tier retailers are represented that helps to justify the costs. It would be particularly helpful if Sales Execs could use the show to avoid an additional schlep to Menomee Falls, Wisconsin or Grand Rapids, Michigan. What can we do to attract broader retailer participation?
  2. Condense the Show in Space and Time.  Most manufacturers had two or three appointments on Thursday morning but also had plenty of downtime on Tuesday and Wednesday. The show could easily be compressed into two days. I confess that I have no knowledge of how this would affect the T.I.A.’s financial considerations but my understanding is that this show isn’t a big money maker for them anyway. Also, the show could easily be fit on just the 12th and 13th floors. That would create a busier and buzzier environment. How could the showrooms on the 4th floor and what’s left of the 8th floor be motivated and compensated to move upstairs?
  3. Serve Beer. But maybe don’t start until lunch. 😊

The big buzz in Dallas was various announcements about the potential rebirth of Toys “R” Us. Phase one will be a shop within a shop launch of Toys “R” Us private label brands at “a prominent Midwest based retailer.” Meijers? Kohls? That sounds like a Hail Mary pass to me. I can’t imagine that the public is exactly riveted by brands like Fastlane or Animal Alley.

zombie

Much more interesting is the prospect of opening 200-300 stores in 2019 under the Toys “R” Us banner. At this point, plan specifics are preliminary and unsurprisingly very sketchy. That said, we should remember that Toys “R” Us was a viable business if it hadn’t been loaded with all that debt. Now that debt is gone, they are mostly off the hook to vendors for 2017 shipments, they have wriggled out of their leases and there is an awful lots of inexpensive retail space to let.

A lot of people had the immediate reaction, “Why would companies want to deal with them again?” Really? I can’t imagine a single toy manufacturer that wouldn’t happily line up for a retailer with 200-300 doors – provided that the terms were right. That said, the new owners of Toys “R” Us should come to realize that there is a lot of bad blood between vendors and a certain Sr. Merchandising Executive who actively chased in shipments that he had to have known weren’t going to be paid for. TRU’s owners may have needed him to hold things together thus far, but if they want to re-establish trust with their vendors, he will have to be jettisoned. All trust there is gone and is unlikely to be repaired. It may be time for the man in the Geoffrey mask to go.

100318-geoffrey-feature

As I write this, Sears/Kmart is back on the ropes and wobbling badly like an aging prize fighter. They have announced they will close roughly 150 stores with an additional 250 stores put under review while about 300 stores that are considered more viable will remain open. Many toy companies continue to sell to Kmart while keeping receivables on a very tight leash, but I can’t help but think that I’ve seen this movie before… and I’ve seen it just recently.

Fortunately, other retailers are picking up the slack, Wal-Mart is increasing its toy department by 30% and Target is doubling its toy selection. Kohl’s and Penney, Five Below and Best Buy are all increasing toy sections for the holiday sales season and other retailers are following suit, Party City will open up to 50 pop-up stores for the holiday sales season and if successful, I would have to think that Spencer Gifts will follow suit with its Spirit Halloween division next year.

               U.S. unemployment rate, seasonally adjusted. Source: Labor Department

unemployment rateThis along with the lowest employment rate in fifty years, the highest consumer sentiment in 18 years and rip-roaring consumer spending should help toy manufacturers in 2018. The National Retail Federation expects that holiday sales-excluding autos, gas, and restaurants – should be up to 4.3 to 4.8 percent over 2017.

Most toy company executives are telling me: “though we would have done better without the demise of Toys “R” Us we think we will do okay.” They also say that they want to make sure that they are going to be okay before they start investing in additional staff. Toy industry hiring which was dead in the first half of 2018 picked up nicely in June but has not been as robust as it should be. I suspect that it will continue at the “better but not normal” rate until we make it through the holiday sales season and the January/February trade shows.

Steady as She Goes,

Tom Keoughan

2208, 2018

Toy Hiring Gaining Traction

August 22nd, 2018|Categories: About Toy Jobs|Tags: , , , , , , , |

The sudden demise of Toys “R” Us has been very disruptive to the toy hiring market. It’s crazy out there. Many companies have laid people off but lots of companies are hiring as well. Oddly enough, many companies are doing both as they reorganize their rosters for the changes and challenges ahead.

Santa-Clarita-Toys-R-Us-Closure-

By the beginning of 2018, most toy manufacturers expected that Toys “R” Us was going to be a bit shaky moving forward and had instituted plans to limit any potential damage by shipping less, later and tightening payment terms. They were hedging their bets but remained confident that business would continue amongst constant reassurances by Toys “R” Us Execs to: “Remain calm. All is well.” Then shortly after the completion of the January and February Toy Shows, Toys “R” Us declared bankruptcy. While everyone knew that things were wobbly, nobody expected Toys “R” Us to fall so far and so fast. After all Kmart has been wobbly but still standing for over a decade.

In a typical year, very little toy industry hiring gets done in January and February as Toy Execs are overbooked and over busy crazily traveling the globe to attend anywhere from three to five shows. Not only are they too busy to hire they also would prefer to wait and see how retailers react to their wares before opening their wallets to add to staff.

WSJ store closing graph

Usually, about two weeks after the final trade show in New York, manufacturers put the finishing touches on plans and projections and the phones begin to ring here at Toyjobs World Headquarters. With the sudden and unexpected demise of Toys “R” Us, manufacturers had to reconfigure their expectations. Publicly there was a lot of finger pointing, magical thinking and gnashing of teeth. After about two months, forecasts were changed and plans were redrawn and search starts picked up in early May leading to increased but not overwhelming hiring in June, July and August.

Toy hiring follows toy sales and I would imagine that toy sales and will be somewhat lower in 2018 as  manufacturers search and battle for shelf space to replace their Toys “R” Us acreage. I would think that challenge will continue but to a lesser extent into 2019 as Toys “R” Us begins to fade into the rear-view mirror. I envision that toy sales and therefore toy hiring will remain disrupted but steadily gaining strength over the next year and a half.

I realize that is very much at odds with recently published NPD data. Toy industry grows its sales by 7 percent in the First Half!! Yeah, but … Consumers were lured into the Toys “R” Us stores by the trumpeting of huge markdowns which didn’t really look all that “yuge” once you were in the store. I know mothers who went to Toys “R” Us every couple of weeks in search of big bargains that barely existed. After all, if you’re going to lie to your employees and lie to your vendors why not lie to the public as well. Probably because traffic, even disappointed traffic, equals increased sales. Unfortunately, those sales didn’t help the toy industry all that much. They were sales of previously shipped and unpaid for merchandise. I would envisage that most of the proceeds went into the pockets of the bankruptcy attorneys rather than toy companies. So I see that 7% Toy Industry Sales Growth as a very flawed number in this period. Sales of toys off retailers shelves was indeed a very different things than sales by toy manufacturers.

That said they toy industry is reacting to and recovering from the Toys “R” Us debacle amongst a very bright backdrop. It’s better to face challenges in an increasingly robust economic environment. After all, this isn’t 2009 and the world isn’t going to end tomorrow. Rising employment, wages and tax cuts have consumer spending on a tear and US GDP rose to 4.1% in the second quarter, Wal-Mart just hit it out of the park. CEO, Doug McMillon was quoted last week as saying “Customers tell us that they feel better about the current health of the U.S. economy as well as their personal finances. They’re more confident about their employment opportunities.”

The evolving retail landscape toward online shopping continues but many brick and mortar retailers like Wal-mart, Home Depot, Nordstrom, and Coach have recently been reporting strong numbers while others (JCPenney, Bon-Ton, Claire’s) are either closing stores or going bankrupt. Weaker competitors are being weeded out and clearing some of the over capacity that has plagued retail. As a result, the remaining chains are growing even stronger.

The good news is that consumers still want to buy toys. Toy manufacturers will just have to be ever more nimble in getting their products in from of them.

Say what you will about Trump’s antics but the economy is humming. I’m still wary about Trumpian trade issues. I suspect, but can’t know for certain, that things will get worked out with Mexico, Canada, and Europe. That said, playing a game of chicken with China is a very different deal. Eventually, after much dickering, we will probably end up with face saving half measures (or more likely quarter measures) … eventually.

Free product idea for a Skill and Action Game:

The Game of Chicken: Trump, Trade and Tariff Edition

01-donald-trump.w710.h473

 

 

 

 

 

 

 

 

“Crossing the River by Feeling the Stones”

Tom Keoughan

 

1704, 2018

Turbulence in Toyland – Same As It Ever Was

April 17th, 2018|Categories: ToyJobs Blog|Tags: , , , , , , , |

 

TRU 4-18-18

I think that it’s reasonable to say that there are two main causes for the recent demise of Toys ‘R’ Us. The first was the excessive debt burden put upon the company by owners KKR, Bain Capital and Vornado Realty. TRU’s heavy debt service came at a time of massive change in the world of retail and made it difficult for the company to invest in the changes needed to survive during this period of disruption. That said even if they didn’t have the debt burden, it is far from certain that TRU would have had the correct strategy or the ability to execute it. With their brand equity they should have been a leader in toy E-commerce but have botched that so many times that recently they haven’t even been one of the top five online sellers of toys. Additionally, their stores were a mess and there really wasn’t any compelling reason to visit them. If only TRU could have figured out how to attract as many people to its stores as attorneys to its legal hearings, things might have turned out differently. I think it’s reasonably to say that the business has been serially mismanaged since the recently deceased founder Charles Lazarus and his original team retired.

Corporate bankruptcies are always messy and the Toys ‘R’ Us case is no different. I am no big fan of US corporate bankruptcy laws having been burned by them a couple of times in my career. They seem a bit topsy turvy to me. Debt holders and financial institutions who are supposed to be professional evaluators of creditworthiness are first in line ahead of suppliers who are doing business with the company in good faith. Games almost always get played. I’m not privy to the details but it is pretty easy to imagine both product and service suppliers to Toys ‘R’ Us being lead on and lied to.

So, where does that leave us today? The patient is dead but there is still time for another attempt or two at resuscitation. To the Paddles! Toys ‘R’ Us is currently undergoing liquidation (even though the bargain prices don’t seem so low) but there are apparently still a few serious and non-serious attempts to revive the collapsing retailer.
There have been whispers of Toys ‘R’ Us trying to spin out or sell its house brands either with or without its internal product development team. However, those brands are not particularly strong, and I would imagine that the chances of this being successful are slim to nil even if they try it. The world will have to learn to survive without a brand called “Animal Alley”.

In better news, Toys ‘R’ Us attorneys have said in court that they have received multiple offers for a majority stake in its Asian subsidiary. Toys ‘R’ Us Canada has also been a viable business and there is talk of multiple offers in the works for the division.

Then we have the strange case of Isaac Larian. In what can only be described as a publicity stunt, Mr. Larian started a GoFundMe campaign purported to be an effort to buy Toys ‘R’ Us. The skinny is that if people donate enough money to buy Toys ‘R’ Us then Mr. Larian is willing to accept ownership of the company. In return, donors will receive not equity but rather bumper stickers and T-shirts which Mr. Larian imagines will be highly prized. I have to ask why such a scheme should be limited to the toy business. There are other troubled companies out there that Mr. Larian might like to own. Perhaps people will also donate money to buy General Electric for him. And why should we limit this to companies in trouble? I may consider asking donors to purchase Apple Inc. for me. It’s not surprising that this absurd effort only attracted $59,000.00 out of the billion dollars Mr. Larian has requested.

Isaac-Larian

Mr. Larian also purports to have made another more serious bid to purchase some Toys ‘R’ Us assets. While his GoFundMe shenanigans do make this plan less credible that does not mean that it is not credible at all. Mr. Larian has said that he has offered $675 million for the U.S. stores of Toys ‘R’ Us and another $215 million to purchase the Canadian operations. As the very least, the offer for the Canadian division appears to have some legs. Should either of these efforts come to pass, toy manufacturers will have to carefully consider whether to do business with a retailer owned by a major competitor. Mr. Larian has said that he will not be involved in day to day operations but people who know or have worked with Mr. Larian have never described him as being hands-off. One has to wonder if other toy manufacturers will be eager to “open their kimonos” on pricing, costs and early peeks at their product lines to a competitor in a secretive and often ruthless business. Time will tell.

Better news is coming out of the K.B. Toys camp. Strategic Marks which owns the brand has been in talks with Spirit Halloween, Party City and others to open up 1,000 pop-up stores to sell toys during the holiday sales season. This should help manufacturers in their search for more shelf space to replace that which they have lost at Toys ‘R’ Us even while fighting against their own unpaid for merchandise which is being sold at a discount during TRU’s liquidation.

Other potential turbulence in Toyland comes from the possibility of a trade war breaking out right at the beginning of the holiday shopping season. Thus far most of the tariff talk appears to be rhetoric rather than policy. Both the Trump Administration and China appear to be engaged in posturing ahead of what will likely be protracted negotiations rather than an all-out trade war. The two sides now have a period of about seven months during which they will seek to negotiate a new normal. Hopefully that will turn out to be the case because a game of chicken can end badly, especially when conducted in public by men with enormous egos. Sooner or later somebody is going to call your bluff.

What does this mean for toy industry hiring? So far, things are much better this year than last. Last year at this time, toy industry executives were telling me that they needed to add staff but were going to “hold off for now” due to uncertainty at Toys ‘R’ Us. Chapter 11 brought “certainty” but it wasn’t exactly helpful and left many companies wide-eyed and immobile like deer in the headlights. In 2018, toy manufacturers were expecting trouble at TRU and planned for it. Very few were expecting that trouble to hit as deep or as fast as it did, especially since Toys ‘R’ Us executives were leading them to believe otherwise. What I see in the toy employment now is total turmoil. Some companies are laying off. Some are hiring. Many are doing a little of each as they seek to realign their staff with their go forward strategies. Few companies are standing pat and most are making changes to meet the challenges of the shifting retail landscape. That means there will be winners and losers. There are few jobs right now for Sales Executives in the northeast, even as opportunities for people with sales experience calling on mid-tier and value channel retailers as well as E-commerce expand rapidly. Some will see new opportunities opening up while others will have to retool and learn new skill sets.

After a brief period of confusion, the toy industry is going to be alright. Consumers still want toys and five years from now manufacturers will have found new ways of getting their product to them. From the early eighties with the rapid succession of toy company shutdowns of – Mego, Lesney, Coleco and CBS Toys – the toy industry has been ever changing and always in turmoil. Same as it ever was.

“Crossing the River by Feeling the Stones”,
Tom Keoughan