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Well, that escalated quickly…it’s the Friday Blog!

Published on: March 16th, 2018

There is a popular internet meme which features Will Ferrell as Ron Burgundy from Anchor Man, holding a bottle of beer and exclaiming “Well, that escalated quickly.” I could have posted that meme several times this week, as the Toys R Us situation hurtled towards its inevitable conclusion.

First up came the news that with no buyer in sight, the UK operation would be closing the doors of all its 100 stores within the next six weeks. 67 head office staff were informed that their services were no longer required, while store staff were made aware that their time as Toys R Us kids was drawing to a close. Ultimately, the way that the company had chosen to structure its global business made it practically impossible for a potential buyer to acquire one small part of it; services were performed by different subsidiaries, which would have necessitated a complicated transitional service agreement. The biggest hurdle, however, was the fact that the rights to the Toys R Us name were held by the US company, tying the UK administrator’s hands behind its back when it came to negotiating a deal. So now, all that remains is to shift the remaining stock and wind down the operation – with brisk sales being reported, even before heavy discounts have been applied, the suggested six-week period seems eminently achievable.

Within hours of the confirmation of the UK operation’s fate, rumours began to circulate that the US operation wouldn’t be far behind, and sure enough, the closure of 753 US stores was confirmed a mere 24 hours later. While there was an almost stoic, sanguine acceptance of Toys R Us’ demise within the UK toy community, the US industry has not unsurprisingly gone into meltdown. Before the official announcement came, there seemed to be a prolonged stage of collective denial, with credible media reports branded ‘fake news’ by seemingly incredulous US toy suppliers. However, once they realised that Toys R Us had missed crucial vendor payments and had postponed its latest court hearing for four days, the penny finally dropped – this was not a drill.

Into the breach stepped MGA’s Isaac Larian, who swiftly became the focal point for the US toy industry’s grief, concern and, ultimately, its desire to salvage something from the sorry situation. Isaac – maverick, passionate and impulsive as ever – posted on social media that he was going to try to put together a consortium of toy suppliers to buy Toys R Us. At first, many people weren’t sure whether to believe him or not. Nevertheless, within a day, he had reputedly made a bid for the Canadian operation, with promises to conduct due diligence on the US operation as well. At the time of writing this column, no-one knows whether this strategy will succeed or fall at the first hurdle.

By all accounts, Canada is a well-run subsidiary, and teamed with a slimmed-down US division, there could well be a viable business in the making – especially as it would no longer be shackled by debt or the vultures at Bain Capital. Whether that business is best run by a consortium of toy companies is a fascinating subject for debate; it has certainly never been done before, and many would say there are good reasons for that. Could all toy suppliers collaborate on such a project (insert your own ‘herding cats’ analogy here)? Isaac’s notorious feud with Mattel makes its participation unlikely, while getting competitors to agree how to work together on a project of this complexity and magnitude is going to require tact and diplomacy of the highest order. How would other retailers react, especially if ‘exclusives’ from certain heavily-invested toy companies started appearing on the ‘new Toys R Us’ shelves?

The sense of foreboding in the US market can only have been exacerbated by President Trump encouraging the introduction of sizeable tariffs for Chinese imports, with toys specifically mentioned as a category being targeted. In the past, this might have been dismissed as political rhetoric, a knee-jerk threat unlikely to come to fruition in the real world. But this is President Trump we’re talking about, so clearly anything is possible.

Against this backdrop, one thing is certain; if Toys R Us is finally freed from its debt burden and given a second chance, you feel that the US toy community will do everything in its power to support the retailer. I saw a perceptive comment this week that summed it up: “The best runner in the race was given an anvil to carry, then criticised for not being in front.” I just hope the industry hasn’t been given false hope; it would be wonderful if someone does indeed come forward to remove the anvil from the equation.

Amidst all the doom and gloom, I searched for something to bring a little levity to the close of this week’s Blog, and I found it in the most unlikely place – Bloomberg. Forget headline of the week, this is surely the headline of the year. I am sure the immortal phrase ‘CEO Bake-Off’ represents the very latest, cutting-edge corporate jargon, but what if it doesn’t – what if Disney really is making its two top executives go head-to-head in a baking challenge to determine who gets the top job? Wouldn’t that just be the best thing Disney has ever done (and I say that as someone who thinks ‘Up’ is one of the best movies ever made). If only Bob and Kevin were actually being asked to make a croquembouche model of themselves, to be judged by a smirking Paul Hollywood…I’ll leave you with that tantalising thought.

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