Holding out for a Hilco…it’s the Friday Blog!

Published on: 9th February 2018

One week I will be able to write a Friday Blog without mentioning Toys R Us. However, this is not that week. I think it’s fair to say that the situation is developing rapidly. The latest news was broken by Sky News, which has been hitherto accurate in its reporting of the TRU story, and it also ties in with some information that was circulating in Nuremberg last week, which came from an anonymous source, but which had an air of credibility about it.

Essentially, the Sky piece asserts that TRU has been speaking to potential new owners and has invited offers for the UK operation – by today. The truncated timetable would appear to underline the urgency of the situation; the article states that administration is inevitable without new funds being injected into the business promptly. In addition, the story goes on to suggest that the entire TRU European operation is now on the market, encompassing over 230 stores in ten countries. A LinkedIn post by a US toy journalist goes a step further, claiming that he has a source who says that the ‘evil axis’ (Bain, Vornado, KKR) which owns TRU is – and here I am directly quoting Jim Silver – “leaning towards liquidation.” The article goes on to say that the type of liquidation is still up for discussion; there are several to choose from – chapter 7, chapter 11 and other variants – which would have an impact on the end result. However, taken in conjunction with the news from the UK and Europe, it does appear that the whole TRU situation could be resolved far quicker than many people would have ever imagined. HMV owner Hilco continues to be mentioned as the most likely suitor, with other unidentified names also said to be in the frame. If the reports are accurate, we should find out if any of these companies are serious in the very near future.

Of course, Toys R Us is far from the only retailer going through a challenging period; the top five stories on last week’s Retail Gazette all covered job losses in the retail sector (around 3,000 in total), while Debenhams has since announced that it will be axing 320 store manager roles. Elsewhere, Homebase’s owners are considering closing up to 40 stores, while credit insurers continue to remove cover from certain retail accounts (it was House of Fraser’s turn to suffer this week). This is one of the main reasons why major toy retailers are not as thrilled about Toys R Us’ tribulations as you might think they would be; it certainly won’t make credit insurers feel positive about toy retailers in general, and it could also result in a wave of cheap stock hitting the market, much of which will end up in parents’ cupboards for future gift-giving opportunities.

Retailers are already gearing up for the trading challenges that lie ahead: Argos has initiated its first major promotional event of the year, while I gather one major nursery / toy retailer invited a group of its largest suppliers to a meeting recently, where the CEO made a passionate plea for support to help it in its ongoing fight with Amazon and the online channel. The ‘support’ in question, rather unsurprisingly, involved additional discount – with the sting in the tail being that the levy would be backdated. Pitched not so much a request as a fait accompli, I have no idea how the individual companies reacted; but I do wonder whether this is really the best way to elicit support. It’s certainly a bold move, and maybe even one born from necessity, but in my experience, these ‘gun to the head’ retrospectives rarely engender feelings of goodwill and foster the spirit of partnership. Which, in the end, is surely what is truly important in a modern business relationship?

On a more personal note, I gather that John Bentley has handed in his notice at Beale’s and will be leaving the business in two weeks’ time after spending 11 years with the department store. Shame.

Thankfully, there have been a few positive stories to balance things up; Mattel’s shares bounced back, posting a gain of nearly 9%, with analysts suggesting that investors may start buying Mattel this year with the belief that it will hit what have been described as ‘conservative’ targets. Meanwhile Hasbro’s annual results were decent; Q4 came up a little short, but that was the same for many toy companies. Over the year, revenue increased by 4% to $5.21b, with franchise brands (Transformers, Nerf, My Little Pony, Monopoly) increasing by 10% and international sales up by 2%. And Amazon has posted its largest profit in the company’s history, almost $2b. Maybe now it is making money it can address some of the murkier sellers on its site; several independent retailers have told me that some consumers remain reluctant to buy tins of putty after the BBC story about the dodgy Amazon third-party seller offering dangerous product. The retailers are doing their best to use this incident as a way of convincing shoppers to buy from them rather than Amazon in future, but it is incredible what a knock-on effect a single unsafe product can have.

Mind you, not all consumers are that diligent or observant. One ‘value retailer’ is currently offering this plush duck for sale. By all accounts, the fact that the duck has its head on upside down has not put consumers off – amazingly, it continues to sell in large numbers despite the rather obvious faux pas. Imagine receiving one of these for Valentine’s Day…