Let's Talk: Toys "R" Us's Closing

In lieu of a true Wisdom Wednesday here is something that everyone in the toy world is talking about: Toys "R" Us. And not for a good reason.

So there is this persistent rumor saying that Toys "R" Us is going to close and liquidate (basically it means that they'll close their doors and get rid of all their merchandise). Even to the point that people are saying Toys "R" Us is writing up a plan to liquidate in the US while all the UK stores are going to close. Toys "R" Us has neither really confirmed or denied the rumors. As of the time of this writing, the only thing that has been said on Toys "R" Us's Twitter and Facebook is the following statement:

To our loyal customers, Toys“R”Us kids, parents, parents-to-be, and everyone in between: We’ve seen an amazing outpouring of love and support in recent days and want you to know that we truly appreciate it. Our stores are open for business, and ready to bring joy to children wherever we can, and to help new and expecting parents navigate the crazy world of raising a family. [Twitter, Facebook]

In the above post, it doesn't really sound like Toys "R" Us are trying to do some damage control by trying not to outright say they're closing while trying to act like they could be staying open forever. Since that post, Toys "R" Us has been really quiet on social media (on Twitter, they would post or retweet a couple of times every day while on Facebook they would post about once per day).

There are a lot of reasons for Toys "R" Us not staying open. Let's go over them real quick, in order from least to most significant.

1) Parents are buying more electronic devices and toys for their children than normal toys.

While some people would think that's significant, a look at statistics shows that toy sales grew 1% in 2017 in the US and made $20.7 billion. While yes - Mattel, Hasbro, and Lego have all reported losses - it may be linked to their own brand failures (like with Mattel specifically) or with having so much stock in Toys "R" Us when it went bankrupt. Youth Electronics is actually the lowest selling of all toy catergories. Note that I doubt that 'Youth Electronics' includes actual video gaming systems and it doesn't account for tablets or mobile phone sales. Still, toy sales are still going strong.

2) Toys "R" Us is overpriced.

This is true in the realm of Lego specifically yet Wal-Mart, Amazon and even Lego themselves are both the same price as our beloved TRU when it comes to certain sets. Like this Pizza Van. But there are slight differences between them that makes one retailer more expensive than the rest.

The Lego store has it listed for $19.99 (plus $4.95 shipping, making the total $24.94 not including tax). 

Wal-Mart has it for $19.99 too, but the price has been slashed to $15.99 (plus about $6 for shipping, making the total $21.99 without tax - $23.10, with tax, making it the cheapest). 

Target has it for the same price as Wal-Mart and the total (including shipping and tax) is $23.74.

Amazon has it for the sale price ($15.99) and it's Prime, so if you have a membership, you get free shipping. 

Toys "R" Us has it for the full price, $19.99, plus $5.99 shipping, making it $25.98, granting it the title of most expensive. 

Let's do another example, but this time with Calico Critters, specifically the Wilder Panda family.

The Calico Critters website lists it for $22.95 plus $5.95 shipping, which equals $28.89. 

Wal-Mart has it for $19.99 but the price is slashed to $17.99 right now, and with the ~ $6 shipping and taxes, it totals to $25.24.

Target has it for $24.95 and with shipping and tax, it's $33.46.

Amazon has it $17.99 instead of its regular price of $24.99 and it also has Prime shipping. 

Toys "R" Us has it for $19.99 and with the $5.99 shipping, it's $25.98. While Target has it beat for most expensive, it's the 3rd most expensive. 

So, is Toys "R" Us really overpriced? It depends. Shipping is expensive and stores can nickel and dime you real quick with it. As for regular price, Toys "R" Us does seem to be on the upper cusp of being expensive. Some people still go to actual stores and buy their stuff physically instead of ordering it, so some people don't have to worry about shipping. 

3) Competition 

As mentioned above, some buyers nowadays use the internet to research what toys they are going to buy. Whether they are looking for a certain toy, the best price or even if they just have a general idea of what they are looking for. So, with this knowledge, people tend to blame Target, Wal-Mart, and Amazon (in order from least to most blamed) for Toys "R" Us's downfall. 

Toys "R" Us has a little bit of an edge over Wal-Mart and Target at least since Toys "R" Us's selection is bigger than just a handful of aisles. Toys "R" Us is what is called a 'category killer' and it flushed out big and small competition alike, even to the point of outright buying fellow standalone toy store F.A.O Schwartz. 

At one point, Toys "R" Us even had a deal, a ten-year contract,  with Amazon in the early days of Amazon to supply Amazon with toys. The deal fell through because according to Amazon, Toys "R" Us failed to carry a good selection of toys. Amazon allowed other toy suppliers to post their toys for sale, and Toys "R" Us missed a once in lifetime chance to jump on the internet shopping bandwagon. TRU sued Amazon in 2006 and won millions of dollars (but not the amount they wanted) in 2009. I think the new owners decided to try and make money off a nearly-decade old deal gone bad. While Toys "R" Us does have a website, they have an awful track record with failing to ship out Christmas presents on time in 1999. While the website is the most visited toy-specialty sites, more people prefer and trust Amazon for online shopping than any other online vendor. 

4) Bankruptcy/Debt

This is the 'true' reason why Toys "R" Us is crawling towards its death. Where did Toys "R" Us get all this debt? That is a simple question with a complicated answer. I'll try to explain it as simply as I can but I bet I'll butcher it because I lack a financial background. If I fail to explain it, watch this video - it explained it in simple terms that I could understand. Now, remember this video first came out just as soon as the news about Toys "R" Us' bankruptcy, so it won't include the latest news. The video goes into full detail about Toys "R" Us and its history. 

In 2005, Toys "R" Us was the victim of a leveraged buyout. A leveraged buyout is basically this: using a mixture of equity (assets minus liabilities - basically the total worth of something) and debt. That's right. Debt. Toys "R" Us, the big toy juggernaut, was bought with debt. This was used to lower the cost of the acquisition. But it also left our beloved Toys "R" Us with a lot of debt. $6.6 million was what TRU went for back in 2005, and in 2017 (the time of their bankruptcy) they owed $7.5 billion to toy suppliers (like Mattel and Hasbro). They owe $400 million in debt from elsewhere. I don't know where TRU got the idea that they could beat Amazon in 2005, especially after Amazon launched Amazon Prime that year and was gaining traction as a trusted online retailer made for us lazy customers that prefer to shop in our pajamas then get dressed and go outside. 

So, in conclusion: Toys "R" Us is not dying just because Amazon is so big or kids are playing on their tablets now. It's a mix of the public's view ('overpriced', 'Amazon is better') and bad business decisions. 

This post was supposed to be done a great deal earlier but I had a migraine today. My migraines are things I would not wish on my worst enemies. I actually planned to go to my local Toys "R" Us today to get some pictures, but my migraine put a hold on that. I hope to do it asap!