Having to hastily re-write my Blog because of major breaking news is becoming a bit of a habit – I think I had better set my alarm clock for 4am every Friday and have done with it. This time it’s our old friends at Toys R Us who are back in the news; credible reports emerged late last night that plans are being made to liquidate the US operation – the nightmare scenario that American toy companies have been dreading. Apparently, hopes are fading of a buyer coming forward or, crucially, that lenders will agree terms to restructure the debt. While I was in New York for Toy Fair, I got the impression that even if they didn’t want to admit it publicly, some companies had already (sensibly) started to plan for a future without Toys R Us and were sanguine about its chances of survival, while others seemed to be in complete denial and refused to accept that TRU would not survive. With 15% of US toy revenue at stake, this would have a huge impact on the US toy market – far greater than the impact of TRU disappearing from the UK market, as ready specialist alternatives such as Smyths, The Entertainer and a strong independent sector simply don’t exist in America. As I said in last week’s Blog, as sad as it is for Toys R Us, its employees and vendors, its demise will provide opportunities for other retailers. Nevertheless, if the reports prove to be accurate, the shock waves won’t just be felt in the US, but will reverberate throughout the global toy market.
Back in the UK, as if retailers don’t have enough challenges, last week’s burst of ‘Snowmaggeddon’ simply added insult to injury. With large swathes of the country affected by ‘the beast from the east’, many stores took to social media to let customers know that they were closed, or that their opening hours were being severely curtailed.
However, there was a silver lining; many retailers who could physically open their doors were rewarded with bumper sales of sledges. The Entertainer got in touch to say that they sold more sledges in a week than they had in the last five years, a feat replicated by many independent stores. I doubt there will be many stock rooms full of unsold sledges this year. Mind you, with even more snow hitting parts of the UK as I write this, hopefully there is still some stock around to give retailers an incentive to battle through the snow to open their stores.
Snatching triumph from adversity is something the toy trade will hopefully get quite good at over the coming months – because I get the impression that we’re going to get plenty of practice. Following last week’s news about Toys R Us and Maplin going into receivership, investors and fund managers started to get nervous about retail stocks in general, and poor old Mothercare found itself right in the firing line. Mothercare’s share price plummeted over several consecutive days, not helped by an announcement that the retailer was in talks with its lenders about a potential breach of its banking covenants. While retail ‘experts’ and observers have lined up to make doom and gloom predictions about what happens next, I’m going to take a contrary view of the situation; one of Mothercare’s main competitors is about to disappear, and £50m of nursery turnover is up for grabs. Surely – surely – Mothercare has a plan to secure a chunk of this figure? Given its precarious position, the potential extra turnover would offer it an invaluable lifeline, so I can’t believe that it doesn’t have a strategy in place. If it fails to increase its sales with one of its largest rivals out of the picture, you really would have to wonder what the future holds…
And lest you should think that the UK retail sector is the only one being buffeted by economic headwinds, the French market has been hit by the news that La Grande Recre, the country’s second biggest toy account with 250 stores, is in major trouble. The only reports I’ve found so far are in French – testing my recollection of A-Level French to its very limits – but it seems that a 75m Euro credit application has been refused by banks, and with suppliers not yet paid for Christmas deliveries, the prognosis doesn’t sound good. Its troubles have been blamed in part on aggressive trading policies of Toys R Us, which is perhaps mildly ironic – while it also illustrates the damage that a struggling business can cause for its competitors.
Back here in the UK, the Toys R Us saga continues to move towards what now appears to be an inevitable conclusion. Today is the deadline for bids to be submitted to the administrator for any part of the TRU UK operation: I may be wrong, but I’m not picking up reports of anyone interested in anything other than the sites, which will presumably be negotiated directly with landlords. Sales of existing stock continue apace; there have been pictures on social media of extremely long queues in stores, begging the question as to where those customers were when TRU needed them. While some stores already have empty shelves, others appear to be extremely well stocked; one has to assume therefore that some toy companies caved in to pressure from TRU buyers and continued to ship products after Christmas. Whether they were trusting, keen to do whatever they could to help a customer in trouble or simply naive I will leave you to decide – but if any of those companies would like to get in touch, I have a bridge for sale in London that might interest them….
Seriously though, given the levels of stock that are yet to be shifted, it seems that some of the stores may be open for a while yet – albeit the longer the stores are open, the more money TRU will lose (and the less will be left over to pay creditors). Retailers with plans to open a new outlet in an area where a Toys R Us store is located might need to be patient for a few months, while the creditor’s list – when it is eventually released – will be the most read document of the year.
Finally, in an inauspicious week for Lego – when the company announced its first trading loss in 14 years – there was at least some good news; the person who stole the head of the Lego statue from outside Crocodile Toys in Cirencester returned it three days later with the following note…