Toys R Us maps out an aggressive comeback strategy

The news: Toys R Us parent company WHP Global mapped out what it calls an “Air, Land and Sea” expansion plan that includes opening up to two dozen flagship stores, as well as developing a new retail format that will appear in airports and cruise ships.

• The flagship stores—which WHP is partnering with Go! Retail Groups to open—aim to offer an immersive experience where consumers can explore and interact with a variety of toys.

The context: Since Toys R Us shuttered its stores in 2018, there hasn’t been a dominant toy retailer as sales in the category have largely been dispersed among mass merchants, including Amazon, Walmart, and Target.

• But since WHP bought the brand in 2021, it has sought to find ways to recapture share of a still-growing toy and hobby market, which our forecast expects will grow 6.6% this year to $208.36 billion.
• WHP opened a 20,000-square-foot flagship store at American Dream mall in New Jersey in 2021. It then rolled out 452 shops-within-shops inside Macy’s stores across the United States.
• It has also aggressively spread its reach abroad; it now operates over 1,400 stores and ecommerce sites across 31 countries.

Offering an experience: Sales in the category have rapidly shifted online due to a confluence of factors, including the lack of a dominant toy retailer in the US, and the enduring impact of pandemic-era spending patterns.

• In 2018, when Toys R Us closed the last of its 735 US stores, 31.2% of sales in the category were online, per our forecast.
• We expect that ecommerce’s share will reach 45.4% this year and continue growing for the foreseeable future. By 2017, we expect ecommerce will account for nearly two-thirds (63.7%) of category sales.

While WHP is pushing against strong headwinds by opening physical stores, it sees an opportunity to rethink the role of the physical toy store.

• That said, it is far from the first merchant to do so. FAO Schwartz was one of the early pioneers of the experiential toy store, and upstarts, such as Camp, have married toy sales with classes, shows, and activities. (We discussed Camp’s strategy on a recent episode of the “Reimagining Retail” podcast.)

The big takeaway: Toys R Us has a prime opportunity to leverage its tremendous brand equity to reclaim some share of toy and hobby sales.

• WHP is making a reasonable bet that in addition to driving in-store sales, physical stores will serve as de facto interactive billboards that also boost online sales.