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From Russia with love…it’s the Friday Blog!

Published on: March 15th, 2019

I’ve written the Friday Blog from a few faraway places over the years, but certainly not Russia. So, this week’s column is a first, coming to you from Moscow, where I gave a presentation at Kids Russia, a trade show part-owned by the Spielwarenmesse operation. However, we’ll come back to Russia later, as it has been a busy week back at home.

Indeed, it is a truth universally acknowledged that if I leave the country on a business trip – especially if it involves travel to a distant time zone – then a major news story will break (usually in the middle of the night). I had been aware for several days that something was going on at The Entertainer, but ‘the deal’ clearly needed some last-minute negotiation to get it over the line. There had been some speculation within the UK toy community that The Entertainer might be about to buy Hamleys, which intensified after the chief executive left at short notice. However, Gary was adamant that this wasn’t the target, and you can see why: while I am not au fait with the precise asking price, I would imagine it is likely to be around five times the price of his actual purchase, the Early Learning Centre – and it would carry a significantly greater risk. For those who have been asking, I have been hearing strong rumours that a Hamleys acquisition is still on the cards, although a deal may not be quite a close as has been suggested – we may still be a month or two away, so who knows, there may yet be some last-minute drama to come.

Anyway, I digress – after a series of ‘it’s nearly over the line’ calls and emails from Gary, confirmation came through in the early hours of the morning that the deal had finally been signed and The Entertainer was now the proud owner of Early Learning Centre. Apparently the deal had taken a year to finalise. Sky reported that ELC had informed investors that £6m would be received on completion of the deal, with up to £5.5m in respect of inventory due within a few months of completion and a further £2m in earn out fees over the next two years. Considering Mothercare paid £85m for ELC in 2007, The Entertainer seems to have picked it up for a very competitive price. It seems to be a great deal for both parties: it helps to push Mothercare closer to clearing its bank debt and keeps the iconic ELC brand alive – Mothercare went so far as to admit that it did not have “the necessary capital, resources or scale” to continue to invest and develop own‑brand ELC toys.

Meanwhile, most observers have suggested that The Entertainer is the perfect company to reinvigorate the brand, especially with Addo Play in an ideal position to refresh the master ELC brand and its portfolio of sub-brands such as Happyland. ELC currently operates from 77 Mothercare stores here in the UK (providing they don’t close any more…), 400 stores internationally via franchise partners and online through its website. When you consider that The Entertainer’s deal with Matalan to curate its toy offering brought £4.5m revenue in its first year, this deal presents an opportunity on a far larger scale. If you are of a certain age, no doubt you and your children will have fond memories of ELC and I have every confidence that this move will see it being rejuvenated for a whole new generation.

There have also been more twists and turns in the long-running Debenhams saga, with Mike Ashley offering to bail out Debenhams with an interest-free £150m loan in exchange for an additional 5% stake in the company, on top of a prior demand to make him chief executive. At the same time, he has accused the board and chief executive of making deliberately misleading statements, claiming they have “no place leading a PLC.” It is certainly getting lively, and suppliers will be hoping for a resolution sooner rather than later.

Meanwhile, the Australian arm of Build-a-Bear Workshop has been placed in voluntary administration, just hours after the US operation reported a 7.5% drop in revenue and admitted growth in international markets was “sluggish” citing both the collapse of Toys R Us and Brexit as contributory factors. I will leave you to decide whether that is a fair and reasonable defence…

I have found my trip to Russia fascinating. I will write an in-depth piece for one of our forthcoming issues, but I do find that wherever I travel, many of the challenges faced by toy suppliers and retailers are the same the world over. In particular, I’m told that Russian toy sales have been moving online “unexpectedly rapidly”, forcing many suppliers and retailers to reappraise their strategies. The interesting thing about this trend is the logistics challenge presented by Russia: this is a vast country, but huge swathes of it are extremely sparsely populated. So, it make sense that as someone in the Urals doesn’t have access to the kind of toy stores that a Moscow consumer has on the doorstep (the amazing Detsky Mir, Hamleys, Early Learning Centre etc), they would be tempted to order goods online. But how can an etailer send a £20 toy to a customer 1000 miles away and not make a huge loss on it? Apparently, the big etail operations are rushing to build local distribution centres, but still one wonders how the sheer size of Russia, the variable transport infrastructure (there is a huge lack of roads and airports in many areas) and the unequal population density lends itself to profitable ecommerce operations.

Moscow is certainly a fascinating place – someone described it as “a country within a country”, a grand city where traces of historical grandeur and decadence rub shoulders with Soviet era austerity. And listening to my tour guide get nostalgic when we walked round an exhibition of old toys at Detsky Mir, it is clear that a love of toys and affection for what we all do in our day job is exactly the same the world over. Mind you, the after-show parties are a bit different here: strong man competitions (how long can you hold a ‘Watneys 4-pint’ in one hand, at arm’s length) have yet to make an appearance at any of the events I’ve attended in Hong Kong, London, Nuremberg or New York. Neither have any of the other show organisers serenaded guests by singing along with an accordionist. That’s one for other show organisers to ponder for next year…

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