Hasbro and Mattel are racing to adapt to a toy industry transformed by the bankruptcy of Toys’R’Us. The toy retailer’s closure of its roughly 900 stores across the US, UK and Australia has led to sliding sales, delivery issues and new customer demands for the toymakers.
The demise of Toys ‘R’ Us fuelled a 12% fall in Hasbro’s net revenues - sales after discounts, rebates and returns – in the third quarter of this year. The owner of Nerf, Play-Doh and My Little Pony also has piles of excess inventory that it expected to sell to Toys ‘R’ Us. CEO Brian Goldner described the situation as “a near-term retail disruption that will last for a few quarters”.
Similarly, Mattel’s net sales fell 8% over the same period. The company behind Barbie, Hot Wheels and Fisher-Price blamed half of the decline on Toys ‘R’ Us, adding that store sales fell by more than 5% as consumers switched to other retailers. As Toys ‘R’ Us historically made the bulk of its orders in the current quarter, Mattel expects gross sales to decline this holiday season. CEO Ynon Kreiz expects the toy market to realign in time and continue to grow as other retailers pick up the slack from Toys ‘R’ Us.
Nonetheless, there are logistical challenges to supplying a wider range of retailers. Hasbro’s new customers don’t order full truckloads of products, they place orders closer to the holidays – specialist toy retailers stock their shelves in July or August - and they require more containers. As a result, Hasbro shipped a record volume of products across the US in September, and dispatched a further $50 million of third-quarter orders in the first week of October. Its executives plan to add a warehouse in the Midwest by next summer, shortening delivery times and reducing trucking mileage to retailers’ distribution centres by more than 40%. Hasbro has also begun sharing warehouse space with customers to “dramatically reduce delivery times”.
As general retailers choose between stocking toys or other products, Mattel and Hasbro must fight to secure and keep shelf space by driving sales throughout the year. Hasbro plans to keep shoppers buying by focusing on story-led brands with releases, promotions and events throughout the year, as well as tie-in content on social media, streaming services, TV and film. Supplying everyone from dollar stores to Hamleys also means revamping its product development to “make the right product at the right price point for different retailers,” says Goldner. Moreover, it’s leveraging consumer insights to build stronger relationships with customers, for instance by offering Marvel and Star Wars toys and games to retailers that serve lots of gamers and superhero fans.
It wasn’t all bad news for Hasbro and Mattel last quarter. Hasbro added 10,000 stores to its retail footprint and believes it has recaptured a third of the revenues it previously earned from Toys ‘R’ Us in the US and Canada. Meanwhile, Mattel’s Barbie sales rose 17% and a combination of cost savings from restructuring and recovery of bad debts lifted its operating income for the first time in two years. Yet the pair have lost a major customer and face a toy industry in flux. Replacing Toys ‘R’ Us with new partners has led to logistical headaches, fierce competition for shelf space, different demands from customers and pressure to drive frequent sales through e-commerce and digital storytelling. Navigating this holiday season will be far from child’s play.