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« The Wooden Soldier; An Appreciation | Main | Phil Bloom On What the Loss of Toys "R" Us Really Means »

December 1, 2018

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Editorial by Philip Bloom, Publisher of "the Bloom Report" that appears on his current report at www.theBloomReport.com: Our industry should be panicking...and here's why~Richard Gottlieb really called it right in his December 1 piece "Target and Wal-Mart Have Never Known a World Without Toys R Us; that's a problem". I urge you to read it. Here are my thoughts on the subject, along with some Toys R Us background:

First let me address the real secrets of Toys R Us (TRU). These thoughts are from my over 50 years in the retail toy business, including 20 with TRU (including VP of International Merchandising).

The late Charles Lazarus was a genius, and seemingly could see the future. He is arguably the founder of "Big Box Specialty Retailing". His empire was built on just a few simple methodologies. As he began to open large toy stores (40,000 square feet), he gave toy manufacturers the opportunity to grow as they never had before by giving them a place to put their products, and in most cases, their entire lines of merchandise on a year-round basis. Up to that time, toys was seen as basically, a fourth quarter business. Lazarus went to the manufacturing industry and promised them year-round exposure. All they had to do was finance his inventory with long-term "dating". In other words, they could manufacture all year and ship all year by granting TRU payment terms that were stretched out for as long as a year. TRU would maintain inventory on new and continuing items, allowing consumers to buy toys all year. And buy they did!

Manufacturers could now put new items on the shelves early in the year to test their viability and TRU would develop sales projections and place orders with manufacturers for large scheduled deliveries later in the year. For the first time, manufacturers had "real-world" info on which to base manufacturing.

Over the years, TRU developed computer programs to help their buyers to gage demand at their stores and to place orders to satisfy that demand, giving TRU (and other big box toy chains at the time) the ability to maximize sales. TRU was able to do what no other toy retailer could or wanted to do - maximize sales on over 10,000 items during the last 6 weeks prior to Christmas...and beyond!

TRU even forcast carryover quantities on most items...and purchased that carryover inventory for mid to late December delivery, insuring an instock position after Christmas and well into the first quarter of the next year! No one ever did that before!

Which brings me to the point of all this and ties into Richard Gottlieb's article. I constantly see industry sales projections for the year (and beyond) that seem to be totally unrealistic.

Sure Amazon, Walmart, and Target will probably show decent (maybe even large) increases year on year. How could they not. They increased the size of their toy departments and stocked them. But rest assured, they do not want inventory on hand at year-end when they cut back their toy departments. They will not be purchasing any significant inventory to stock their shelves after Christmas.

Each year, our industry has 200-300 items that come under the label of "hot items". Any given retailer could probably sell an unlimited amount of these items if they could get them. But they can't. Most of these items are already gone from retail shelves. In the past, TRU was always the most likely to get some stock on many of these items. And after Christmas shipments of these hot items to TRU would generate sizable volume in the the first quarter.

And after the "hot items" comes 2,000-3,000 items that are good sellers (but not necessarily hot). These are the items I mention above that TRU bought as carryover. Without TRU carryover buying, many millions of dollars of sales are lost to manufacturers, decreasing industry sales. Also affected are "stocking inventory" that was year-round at TRU. That's all gone.

And what about the liquidation of the TRU inventory. It didn't all just get absorbed by consumer buying. Several billion dollars of inventory was put into consumer hands. That will have to come from somewhere Where? Future toy sales.

While I have always taken an optimistic approach to our industry, it's getting harder and harder to see our industry grow in the next few years as we adjust to being a smaller industry. We could be in real trouble, and once again find our industry back in the early 1960's...

I was a Target Stores Toy Buyer from 1994-2002 and have been in the Toy & Kids Book industry since 1994. I believe it will take years for the Toy industry to recovery from the loss of TRU. I agree there will just not be enough inventory for consumers during the last 10 days prior to the Holidays. The Toy industry will probable decline in the last quarter will be down mid single digits next year because the TRU lost sales will not totally be absorbed by the other retailers. I hope I'm wrong! I guess only time will tell.

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