While retailers can safely lay the blame for their poor Q3 results on the September 11 terrorist attacks, there were strong indications that things would be grim at the check-out lines long before most people knew how to pronounce Osama bin Laden. The S&P’s retail (RLX) index dropped 10.7% over the first nine months of the year, as large retailers like Wal-Mart, Kmart and Toys ‘R’ Us all reported revenues below 2000 levels.
Retailers that sold kids products were especially vulnerable to the downturn. According to The NPD Group, for the first half of this year, sales of children’s apparel fell 5%, while toys rose only 1%. The first quarter began on an ominous, yet predictable note, with eToys shuttering its virtual doors in March (though KB Toys bought its assets and relaunched the site last month), effectively throwing dirt on the dot.com notion that a pureplay toy e-tailer could deliver profits.
Its bricks-and-mortar brethren didn’t fair any better. In January, GE pulled the plug on Montgomery Ward, the storied department store chain that gave birth to Rudolph the Red-Nosed Reindeer. Other retailers joining the death march were San Marcos, California-based toy chain Play Co. Toys, which closed its 34 stores in March; and Warner Bros. Studio Stores, which WB said it would nix as part of the AOL-Time Warner merger cuts.
Companies that staved off extinction included Rocky Hill, Connecticut-based Ames Department Stores–the sixth-largest toy chain in the U.S.–which filed for bankruptcy protection in August; and King of Prussia, Pennsylvania-based Zany Brainy, which followed suit in May (and was later bought out by The Right Start) after its purchase of rival chain Noodle Kidoodle a year earlier proved more costly than it initially anticipated.
Ultimately, this year will close much the same way as 2000 did, with kids merch retailers bemoaning the paucity of hit product. The upside? The Q4 introduction of two new video game consoles from Microsoft and Nintendo, as well as the holiday release of three blockbuster movies (Harry Potter and the Sorcerer’s Stone, Monsters Inc. and Lord of the Rings) could help drive consumers back to the stores, says Commerce Capital Markets’ Richard Zimmerman. That, coupled with the likelihood that consumers will be traveling less now, may mean they will have more money to spend on toys and other goods for their kids.