In my last posting, “KB, Bain Capital and Romney; toys and politics,” I talked about Bain Capital, one of, if not the most powerful players in the toy industry. Bain has been in the news due to its owning KB Toys when that company filed bankruptcy in 2008. Mitt Romney is closely associated with Bain (he is a founder) so the company has become part of the political sparring that has been going on in the Presidential election.
Bain is a far bigger player in the toy industry than many of us may realize. Through its ownership of KB Toys (at one time the number 2 toy store chain) and Toys R Us (the number 1 toy store chain) it has played a dominating roll in toy retailing. My question is: Has Bain Capital been good for the toy industry and has the toy industry been good for Bain Capital?
In this posting, we take a look at Toys R Us. Here is what Hoovers, a D&B company, has to say about Bain’s stewardship of Toys R Us:
[U]nder [Jerry] Storch … Toys "R" Us made a concerted effort to clean up its stores, reduce clutter to make shopping easier and more enjoyable. He has met with some success winning back market share from discounters… To that end, Storch has focused on making Toys "R" Us a leaner, more efficient retailer. The toy seller has emphasized customer service and stocked up on top-selling and proprietary… He has, among other things, made the stores far better places to shop.
That rings true for me. Toys R Us is a far better toy retailer than it was prior to the Bain takeover. Stores are cleaner and better stocked and the product mix seems richer. The only major concern is the debt burden that was reported by Hoovers to be $5.1 billion dollars as of January 28, 2012.
So, has Bain been good for the toy industry in terms of Toys R Us? I think we can give it a qualified “yes.” But how good has Toys R Us been for Bain?
From all appearances, Bain seems to have miscalculated as its plan for a public offering of Toys R Us stock, first announced in 2010, continues to be delayed. Bain, like most Venture Capital companies, saw its ownership as short term. That has not happened as Toys R Us has had to fight
Where did Bain go wrong? I think it over estimated the ability of any toy retailer to dramatically increase retail sales. The traditional toy industry has historically seen its sales rise and fall in the low single digits. Bain may have been fooled by the dramatic rise in Video Game hardware and software in the late 2000’s. That sector did indeed grow in double digits but when the bottom fell out it also declined in the same manner. Never-the-less, Toys R Us last year managed to outpace the toy industry with a 5% increase in traditional toy sales while the toy retail sector was down 2% over all, no small achievement.
Bottom line, Bain would have liked to have been out by now and they may be in for a while, like it or not. So, has the toy industry been good for Bain? Certainly not as good at it had hoped.
In my next posting, we will look at Bain’s stewardship of KB.