"I don't wanna grow up, I'm a Toys R Us Kid."
You're singing the song, aren't you?
News of Toys R Us going out of business is everywhere. It's getting more press than some much more deserving world affairs stories. Why? Because Toys R Us has meant so much to so many of us that watching it die feels like losing an old friend.
But that's the thing. Something that loved doesn't just die that easily. Or at least not for long.
The Toys R Us we all know and love is dead. But I expect to see a new, reinvented incarnation of Toys R Us make a Hostess-style comeback within the next few years. And it just might be as an Amazon brand. How could this happen, and why? Let's think it through...
Why Is Toys R Us Dying?
The first assumption most people have is that Toys R Us just couldn't compete. With Amazon dominating online sales, Target and Walmart taking over a large part of the brick and mortar toy business, and video games and apps lowering the demand for toys in general, Toys R us was doomed. Right? Well, no. They still controlled about 15% of the toy market, and had an extremely well loved brand. They very easily could have restructured their business a bit and had a strong business for decades to come.
No, what killed them was corporate takeover shenanigans. In 2005, Toys R Us was a publicly traded company, until Bain Capital, KKR & Co., and Vornado Realty Trust combined their efforts to buy out the company and take it private. They bought the company for $6.6 billion, but only put in $1.3 billion of their own money. The remaining $5.3 billion they borrowed. Which meant the newly private Toys R Us now had $5.3B in debt forced onto their books. And to add insult to injury, they spun off a new company called Toys R Us Property Company, which then owned all of the real estate, which it leased back to the main company.
Now, in addition to having to make enough profit to keep their business running, Toys R Us had to pay $400 million dollars every year, just on payments and interest on that insane $5.3B debt. Even in good times, that would have been an extremely hard burden to manage. Add in the competition and weakening demand for toys, and it's a recipe for disaster.
What Happens Next?
So here we are. Bankruptcy couldn't save them, so Toys R Us is closing their doors for good, laying off 30,000 employees, and liquidating their assets. But that's where things get interesting. Yes, they're liquidating their inventory, too. But the one asset they have to liquidate that could be a game changer is their brand name and intellectual property.
We've seen this before. In 2009, after 79 years, Hostess went out of business, taking their beloved cupcakes and Twinkies off the market "for good." But then, in 2013, the Hostess brand and IP were sold to another company, who restarted the business and brought those beloved snack cakes back to the shelves. And now people barely remember that Hostess was ever gone at all.
So who's going to buy the Toys R Us brand and IP? My money is on Amazon. They're the kings of retail, they're innovative enough to be able to reimagine the business model for the 21st century, and they already understand Toys R Us's business pretty well, after being the online presence for Toys R Us for a few years, back at the turn of the century.
Who else might be interested? Walmart? Target? Some random holding company none of us have heard of? Maybe. Hasbro, after they acquire Mattel and secure a near monopoly on toy manufacturing? Also plausible. Though I'm not sure any of them have both the retail expertise and the innovative spirit needed to really pull off a Toys R Us reinvention.
But rest assured, someone is going to buy the Toys R Us brand and IP, and they won be buying it just for the fun of it.
What Would Amazon's Toys R Us Look Like?
If Amazon buys the Toys R Us brand, they're not going to reopen the stores as they were. Those locations will have been sold off, leased to other retailers, or (like many old Mervyn's lots) turned into condos by then. And Amazon doesn't want to run an exact copy of the old Toys R Us any more than they want to own an exact copy of Barnes & Noble. They'll go back to the basics, dig in to the first principles of the toy business, and reimagine it from scratch.
What do you remember about Toys R Us? I mean, what memories do you have that really resonate and make you feel like a kid again? For me, it's the Star Wars aisle. Or the Transformers aisle. For you it might be Barbie, G.I. Joe, My Little Pony, Elmo, bikes, board games, or some other aisle that was overflowing with That One Thing you just couldn't get enough of. And they had more than enough of it. More than you had any idea even existed.
Toys R Us, at its best, was the purest form of showcase merchandising. Take any kid, find out what they love, and chances are there was an aisle that they could spend all day. Even if we couldn't afford to buy anything, just seeing everything that existed, dreaming about what we wanted, and silently writing up that xmas or birthday list in our head could keep us entertained for hours.
Target and Walmart do their best to replicate that on a smaller scale, but it's just not the same. And online retail has always excelled in search-based shopping and sucked at browsing. There's a huge opportunity for someone to crack that nut and build a destination site where any kid who loves That One Thing can go to see every toy, book, poster, and toothbrush that exists with That Thing on it. Give kids the awe-inspiring browsing experience online they had at Toys R Us, and you'll have a great business. Give parents and others who want to buy gifts for those kids a way to tap into that kid's ultimate wishlist (with proper parental grooming), and feed their "wouldn't it be cool if" ideas back to the toy makers and entertainment companies, and you’ll have something truly special on your hands.
Anyone who buys the Toys R Us brand could build something like this. But just as Best Buy is learning, their business would be hampered by shoppers using their stores for showcasing, to decide what they want to buy, then going online to get it cheaper off Amazon. For Amazon, of course, that wouldn't be an issue.
And as we're seeing with Amazon's experiments in brick and mortar book stores, there's a very good chance they'd eventually start to open brick and mortar Toys R Us locations as well. They wouldn't look like the old Toys R Us. But they'd serve the same ultimate purpose of giving kids all over a place that they'll beg their folks to bring them on the weekend, so they can revel in the bliss that "I want ALL THE THINGS!!" feeling.
Mark my words. A few years from now, we'll see a new incarnation of Toys R Us launch, from the new owner of the brand. They'll keep the giraffe and the vibrant colors, but re-imagine it for how toy sales should be in the 21st century. And more likely than not, the new Toys R us will be an Amazon brand.
(If anyone has Jeff Bezos on speed dial, please let him know that I would LOVE to help him reinvent this new business. Let's Mary Ellen Carter the shit out of this!!)