- As bankrupt Toys R Us begins closing shop in the U.S., the founder of a brand holding company is trying to jump into the sudden hole left in the toy retail market by restarting the defunct KB Toys chain.
- Ellia Kassoff, founder of Strategic Marks and Leaf Brands, recently said on LinkedIn that his company has been working for the past six months to iron out a "sustainable model" for the toy seller, which liquidated about a decade ago after its second bankruptcy. Kassoff said in his post that he wanted to "bring back KB Toys the right way so it can compete with not only the big-box stores but online as well." Interview requests with KB Toys were not returned.
- Kassoff, whose company has brought back candy brands such as Hydrox and Astro Pop, invited Toys R Us employees, as well as other players in the toy industry, to apply at KB Toys. "Now, with the closing of [Toys R Us] so quickly, it caught us by surprise so we've spent the last few days with our team and leaders in the toy industry to figure out how we can accelerate the project so our stores can open for the Christmas season," he said.
Kassoff, like several other players, is watching the collapse of Toys R Us in the U.S. and seeing an opportunity worth potentially well over $1 billion.
That's about how much in sales Toys R Us would leave on the table if it were to close all of its U.S. stores. The company is trying to salvage 200 of its top-performing locations, as part of a deal to sell off its Canadian unit in bankruptcy, but there is no guarantee a deal will come.
Meanwhile, toy makers are fretting, and retailers and rivals are rubbing their hands. FAO Schwarz, once a unit of Toys R Us, is plotting a reentry into physical retail after exiting a couple years ago with the closure of its (very expensive) Manhattan flagship. The plan includes airport locations, international expansion and a new, smaller New York flagship.
Target, Walmart, Amazon and others are also poised to take on new toy sales as Toys R Us closes stores. (Amazon is said to be interested in some of the toy retailer's stores — but not its name — as added physical real estate that could be showrooms for its devices and additional logistics nodes.)
But, as Jeffries analysts led by Daniel Binder pointed out in a note last week, gains in sales to other players could take longer than some expect.
"[T]his category is particularly unique given that about 75% of toy sales occur in the fourth quarter and we are still early in the year," Binder and his team wrote. "The risk is that consumers load up on toys that have price reductions of 30 to 90% [i.e., from Toys R Us closeout sales] and stock them away until the holiday gift giving season." The exception, they note, is Ollie's Bargain Outlet, which typically sells at deep discounts year round.
Ultimately, according to Binder, the retail death of Toys R Us could mean increases in comparable-store sales for the major players, to the tune of an 0.7% jump for Walmart, 2% for Target, up to 2.1% for Bed Bath & Beyond (which competes with Babies R Us), and up to 1.6% at Ollie's.
That could pose headwinds, too, for the revival of KB Toys, once the second-to-last remaining national chain of toy stores. As an ironic historical footnote, at the time of its first bankruptcy, the retailer was owned by Bain Capital, one of Toys R Us' private equity owners.
The revived chain would also face all the difficulties in reviving defunct brands (though the task is often easier than starting one from scratch) and selling toys in a market shaped by mass merchants and Amazon. Just ask Toys R Us how hard that can be.