Just call me Sherlock…it’s the Friday Blog!

Published on: 27th April 2018

Saturday morning is normally quiet on the email front, as indeed it should be – Saturday morning is for tinkering with your Fantasy Football team, not proper work. Switching my mobile on last Saturday morning, I noticed that I had received an unusually high volume of emails (and not just people begging me to stay on their digital mailing list), including several from contacts at Smyths. Aha, I though, something has happened: just call me Sherlock.

Indeed, something had happened, at 5 am that morning to be precise; Smyths had acquired the Toys R Us operations in Germany, Austria and Switzerland in a deal worth around 80m Euros. It was a big, bold, brave move, illustrating the extent of Smyths ambition to grow its business beyond the UK and Ireland. At a stroke, the agreement created the largest specialist toy retail operation in Europe. The stores will be rebranded using the Smyths name, while existing employees and management have been retained. I am sure that employees – not to mention suppliers across the region – are delighted with this development, and so they should be.

The deal offers yet more proof of the strength of the UK toy retail channel, especially those independently-owned operators. As one general manager wryly pointed out to me: “If you listen to Argos, Tesco, Amazon and the like, there is apparently no profit in toys.” I think this move suggests otherwise. Nor do I suspect this will be last example of a successful British toy retailer expanding its horizons this year…

With the Fairfax acquisition of Toys R Us Canada and the imminent sale of its Asian operation, Toys R Us clearly isn’t going to disappear completely from the global retail landscape, although it finally closed the doors of its remaining UK stores this week. I recently came into possession of the Toys R Us creditors list, and as I suspected, it makes fascinating reading. Rather than dwelling on the amounts owed to individual suppliers, I wanted to mention a couple of other things that stood out. Firstly, the eye-watering sums paid to lawyers, administrators and other companies involved in the winding down process. It is only when you see it written down in black and white that the true scale of their charges hits you. £56,000 for a PR company for four months. Let that just sink in for a minute. £56k…for what exactly? Sending out a couple of press releases saying that stores would be closing and saying “no comment” when someone asks them a question. It simply beggars belief. On a lighter note, I noticed that the administrator is having problems selling one specific store as it has been occupied by squatters. How very British…

In fairness, the winding down of the TRU UK operation has, on the whole, been orderly and clean, and its impact on the broader UK toy retail market has been relatively minimal and short-lived. Contrast this with what’s happening over in the USA, where I was tipped off about a new strand of the liquidation process I’d not come across before: an ‘augmented liquidation sale’. Essentially, a liquidator has acquired the rights to sell the remaining inventory in the TRU stores. As part of the deal, said liquidator can basically do what it likes with the stores. So, in addition to the existing TRU merchandise, it has ordered in millions of additional clearance products, which has been arriving pre-priced at store level. Now, there is no suggestion that this approach contravenes any laws; however, it is potentially going to saturate the market (“with absolute crap,” as the supplier who told me about the move described it), which will inevitably impact other retailers. We avoided this very scenario in the UK, as TRU wasn’t overburdened with stock post-Christmas, so you have to feel for US retailers, who can do nothing absolutely nothing about this dubious practice.

And it’s not just US retailers that are unhappy with the TRU situation; it was announced this week that $156m had been set aside to pay suppliers for merchandise shipped after the bankruptcy filing last September. The problem is that vendors are collectively owed $760m, so there is a huge disparity between what is owed and the money available to pay the bills. Some suppliers thought that their debts would be covered by the $3bn bankruptcy loan, but a court has confirmed that priority is being given to lenders, lawyers and all the other companies which cluster round a bankruptcy like vultures around a carcass. What a mess.

Elsewhere, Hamleys’ Chinese owner is in talks to buy a stake in House of Fraser; Character Options has released a very respectable set of half year results and Vicki Marler-Hausen (nee Elmer) has parted company with Bladez – we’ll be bringing you details of what she’s up to early next week.

Finally, with Mattel CEO Margo Georgiadis being replaced by Ynon Kreiz last week, the rumour-mongering analysts were out in force. As Ynon has previously been involved in selling a couple of businesses to Disney (Fox Kids Europe and Maker Studios), the ‘experts’ were quick to add 2+2 and decide his appointment increased the possibility of the sale of Mattel to a third-party. Except, I’m really not sure it means that at all. If a sale genuinely was imminent, why go through all this top-level upheaval in the first place? And why sign a 10-year lease on a brand-new warehouse in Leicester? Mind you, wait until the analysts find out that the warehouse sounds like it is named after a Hasbro product – Optimus 205. I bet they’ll have an absolute field day with that!

Have a great weekend, see you at the plaY-room show if you’re going on Tuesday.