Toys R Us bankruptcy to boost Amazon toy sales
Judging from its massive toy sales last year, when Toys R Us was a stronger competitor, Amazon is poised to benefit from the now-bankrupt toy retailer’s struggles, according to a client note from global investment banking firm Jeffries cited by Business Insider.
Amazon’s toy sales last year were some $4 billion, about 20% of the market, according to Jeffries analyst Stephanie Wissink. More than half of those came during fewer than 60 selling days, and more than a third (35%) took place in December alone, according to Business Insider’s report.
Toys R Us isn’t out of the picture, but its fourth quarter consolidated net sales last year fell $192 million year-over-year to $4.66 billion, due mainly to a decline in same-stores sales and store closures in the U.S., including the company’s Times Square flagship store in New York. The retailer had a strong start to the holidays, but in the weeks following Black Friday faced sluggish sales and intense promotional activity.
When it came to toy sales last year, there was decidedly more competition to contend with, and not just from Amazon. As sales in the category surged last year, Macy’s added toys to its off-price Backstage pop-ups in full-line stores over the holidays, Hudson’s Bay added toys to its holiday merchandise and Kohl’s brought in the popular American Girl doll line for the season.
While busy consumers increasingly turn to e-commerce to get their holiday shopping done and Amazon chugs along, assisted by Alexa, which was enabled last season to help its Prime members shop for toys, Toys R Us is undermined by a badly timed bankruptcy and wary vendors. In the days and weeks leading up to its filing, many suppliers, spooked by the news that the retailer had hired Kirkland & Ellis to advise it on debt restructuring options, began demanding strict terms for payments on product shipments. That created a sudden, unanticipated liquidity crunch for a retailer with little financial wiggle room.
"The timing of all of this could not have been worse, as the company is in the process of building holiday inventory," Toys R Us CEO Dave Brandon said in the bankruptcy filing, adding that Toys R Us generates 40% of its annual revenue in the weeks before Christmas.
Speaking to Retail Dive, Howard Davidowitz, chairman of New York City-based retail consulting and investment banking firm Davidowitz & Associates, also called the filing's timing "badly, badly botched."
"They do more of a percentage at the holidays than anybody on the planet. Can you imagine that? What this means is — the trade cut them off — they can’t pay their bills," Davidowitz said.
"When you go bankrupt, the retailers always try to go in January," he also told Retail Dive, adding that Toys R Us should have moved sooner, in January of this year, to go to bankruptcy court. "It leaves you in a much stronger position. In January, you have the peak debt — you owe your vendors the most money — but you have all the cash because they do all the business in the last quarter."
Bankruptcy could allow a retailer in that scenario to wiggle out of some obligations to vendors while sitting on its biggest pile of cash. But with vendors balking at Toys R Us’s prospects, the company needed more debt in order to be able to even open for the holidays.
The timing of the filing, in fact, took many by surprise, as Toys R Us did not appear to be at imminent risk of bankruptcy and didn't even make Retail Dive's list of retailers to watch. Analysts at Debtwire and Fitch, in interviews during the days between the initial news reports of the retailer bringing on Kirkland & Ellis and the filing, told Retail Dive that the company seemed to have enough liquidity to stock its shelves through the holiday season and into next year's debt maturity, which was $400 million compared to the headache-inducing $2.6 billion due in 2019.
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