While the toy industry as a whole grew by 5% last year—chiefly led by big movie releases, hot new trends and growth in licensed products—iconic retailer Toys “R” Us failed to reap all the benefits.
According to its recent earnings report, the private big-box retailer’s consolidated net sales were US$11.5 billion in 2016, representing a decrease of US$262 million compared to 2015. The dip in sales was reportedly the result of a number of factors, including increased online competition and US store closings—most notably the shuttering of its high-profile flagship location in New York’s Times Square. In an increasingly challenging bricks-and-mortar retail environment, Toys “R” Us does have one major advantage—its long and iconic history in the marketplace is second to none. In order to assert its position as the world’s favorite toy store, the retailer has undertaken a multi-year transformational strategy that emphasizes in-store experiences and online integration.
Kidscreen recently sat down with Jamie Uitdenhowen, VP and general merchandising manager, to discuss what worked well in 2016 and what the retailer’s plans are for 2017 and beyond.
What drove the most retail traffic for Toys “R” Us in 2016?
When you look at 2016, three things really stand out to me: Big movies, Pokémon and licensed preschool.
We had some exciting big-screen hits with Trolls, Rogue One, Moana and Captain America. These were great movie properties that helped drive the business with some really innovative products. We were able to support this with our new movie HQ we kicked off last year. It was very exciting to see that come together.
The second piece was around the Pokémon phenomenon—it kicked into overdrive last year. When the Pokémon GO app launched, it seemed like everywhere you walked you saw someone playing that game—it was pretty crazy. Pokémon has always been a great seller, but it went to a different stratosphere once that game came out. It was extremely exciting, and we were able to capitalize with our exclusive 20th anniversary products that we worked on with [master toy licensee] Tomy. Anything Pokémon went through the roof! The categories that saw good response were the traditional collector cards, which have been out there forever. They continued to perform well and their sales even accelerated. Then you had core toy products like figures, as well as plush. You also saw all the consumer products like backpacks, apparel and print wear popping. Basically, anything Pokémon last year saw some significant lifts.
The third key piece was around the licensed preschool business. It was an explosive year for licensed preschool brands. A lot of that was driven by PAW Patrol, which had another phenomenal year in the marketplace—[creator and master toy licensee] Spin Master just did a great job with the products, and the content that was distributed on Nickelodeon was fantastic. The other exciting thing was our launch with [eOne Family's] PJ Masks in October. We discovered there was a ton of pent-up demand for PJ and it really resonated well with customers. We are continuing to see that success this year so far—and we think it will keep going.
Were those the three biggest drivers internationally, as well as in North America?
The movies were mostly global plays that drove traffic around the world, although there were different release dates internationally. Pokémon is certainly a global phenomenon. The preschool products typically launch a little bit differently around the world from a content perspective. But PAW Patrol was still very strong and growing globally. PJ Masks is a new property that was launched last year in the US and North America. So it’s in a different stage globally from a development standpoint. There is a lot of interest outside of the US, but the full program is not quite as developed in certain markets yet.
Are you expecting the same drivers in 2017?
There are always some surprises that you don’t expect. I think from a licensed standpoint in 2017, we have some great movies in the queue. We fully expect that trend to continue this year with Cars 3, Despicable Me 3 and Star Wars Episode 8. I just read that the new Thor: Ragnarok preview was the number-one Disney preview of all time in the first 24 hours. That is just incredible and it shows there is still a ton of excitement around the Marvel Universe.
From a non-licensed perspective, we are seeing a couple of trends that just popped up from the middle of nowhere. There is the ‘make your own slime’ craze, which is really quite significant. The Nickelodeon brand is doing well with that already. There is also the fidget trend. It is really emerging. There are spinners and fidget cubes. It is something that we have seen explode. There will be licensed versions of this fidget craze. We have already seen Marvel-branded ones, and we will see much more as everyone is trying to rush to market. It’s something else! It started with a Kickstarter campaign and now it is a craze that is going across North America, and we think it is only going to get bigger. It is very exciting to have something so new really capture consumers’ imaginations.
How important is it for Toys “R” Us to have a relationship with licensors? What advice would you give a new licensor?
The relationship with the licensor is absolutely critical in the success of programs. Over the years, we have found that our most successful programs are the ones we have done together with licensors. It works best when we are all able to work together— licensors, manufacturers and inventors. When we collaborate on driving the property, that is when we see results. From our point of view as a toy specialty retailer, we try to have a very open-door policy on emerging licenses and trends. We go to a lot of trade shows around the world. We seek out a lot of emerging licensors and licensees. We know this is a very fashion-driven business, so we try our best to be on the cutting edge. We are always looking for the next hot or exciting license that fits our portfolio. Our teams are actively engaged in finding them and we are certainly always open to listen.
Toys “R” Us has a long history of developing private-label brands. Where do you see the balance between private, national and licensed brands going forward?
Clearly, private brands have been one of our levers of growth. It is something we invest in as a company and will continue to do so. We have private brands that are also licensed, like the Animal Planet toy brand with Discovery. There are obviously strategic levers, and it is a considerable part of our business. It is one of the levers we have as we look at maximizing our stores and how we relate to customers. It gives us important flexibility on developing unique products for our customers and we can use it to fill some gaps that we might see in the marketplace.
When I think about our private brands, Animal Planet to me is one that stands out. We have a long-term relationship with Discovery. Perhaps I’m a little biased here because I used to be the buyer for Animal Planet, but I think kids love the collective play involved with the products. And it’s true that every year, no matter what, there is going to be a whole new bunch of kids who love to play with dinosaurs. We have found a way to capture that year after year. Another private brand that we will continue to support is You & Me. I have two daughters and they just love the You & Me baby dolls. It’s also a hot trend right now. Those are two of the brands that truly resonate with all of our customers, and over the years, have been developing unique positions in the marketplace.
What is your strategy around exclusives? How much of a factor are they for TRU in 2017?
We are very positive about exclusives. Frankly, they are a very important part of our business. As such, we try to be as flexible as possible where it relates to exclusives and product opportunities. As I said earlier, our business is fashion-focused and trend-focused. We have to be super-flexible. We just talked about the fidget and slime trends—these things didn’t even exist a few months ago. So you always you need the flexibility to react to thing like that. When it comes to exclusives, we strive to drive meaningful traffic-generating ones. Last year, we partnered with eOne and Just Play for the launch of PJ Masks. We were able to have that entire property exclusive for 2016′s fall season—and we saw amazing results. The products really resonated with our customers and we look forward to continuing to see that success in 2017.
Amazon, one of your major competitors, is attacking specific categories in a way that could make ‘category killer retailers’ like TRU vulnerable. How do you compete with that?
The way to compete is by focusing on and supporting first-to-market opportunities, unique product launches, unique positioning around popular and licensed brands and by developing 360-degree marketing campaigns to drive awareness and in-store traffic. We can convert online, and that really helps set us apart from our competitors. We are also very committed to bringing our stores to life through immersive feature shops, in-store events and interactive displays. As a specialty retailer, in-store experiences are really important to us on every level.
So, on a store level, are we going to see substantial changes across the board that will effect your approach to merchandising?
We have been very overt in our messaging around bringing our stores to life. I would expect in the future we would have more in-store experiences than we have today. That means more shop-in-shops than we have now and other features like it. We launched American Girl last year in a subset of our stores, and it was very exciting for our customers. I would expect to see growth in the number of stores that have American Girl and other products and in-store experiences like that.
We are now seeing many long-time retailers jumping into new categories, often ones that seem to have little connection to their traditional merchandise. Is that something TRU is always considering?
We are always keeping our eyes open for new categories in the marketplace. Rewind back seven or eight years to when we didn’t sell the traditional ‘As Seen on TV’ products that we see in the marketplace. For whatever reason, we didn’t do it. Then we tested that product in our stores and it’s phenomenal. Now it’s a section you see in all of our stores. In fact, the whole ‘As Seen on TV’ market is actually developing a lot more toyetic products because of the success we have had with it. So the lesson is that we should always be open to new products. We are always looking at new product categories and opportunities that will serve our customers well.
Toys “R” Us at a glance
Established: In Washington, D.C., 1948
Stores: 1,905 (880 TRU & Babies “R” Us locations in the US, Puerto Rico and Guam; 780 international stores, 245 licensed stores in 37 countries.)
2016 net sales: US$11.5 billion
Chairman and CEO: Dave Brandon
Owners: Kohlberg Kravis Roberts, Bain Capital, Vornado Realty Trust
Employees: More than 1,500 worldwide