There’s an Opportunity Out There for Someone

Posted by Marty Brochstein on March 16, 2018

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With reporting by Mark Seavy

By the time Toys R Us sought bankruptcy court approval early Thursday morning “to begin the process of conducting an orderly wind-down of its U.S. business and liquidation of inventory in all 735 of the Company’s U.S. stores,” many in the licensing industry were well into the process of trying to figure out how they’re going to conduct business without the retailer who has been widely known within the business as the big retailer both able and – more to the point — willing to launch and nurture new properties and products. (It should be noted that some have floated “white knight” scenarios that would keep as many as a third of the company’s stores operating.)

It’s the first point that many in the licensing business seized upon as the news unfolded.

“For the great brands that aren’t owned by Disney or Nickelodeon, the road began at Toys R Us or ran through it,” says Licensing Street’s JJ Ahearn, whose firm represents such children’s properties as Daniel Tiger, Octonauts and Dinosaur Train. “It will be interesting to see how that impacts the industry.”

“If you’re a Paw Patrol, you will pick up the lost sales [somewhere else], but it’s emerging properties — brands seeking to test the waters and DTRs” — that are going to face the biggest challenges, says The Joester Loria Group’s Debra Joester.

One children’s producer said that TRU has given properties a chance to breathe and develop a following. “You used to be able to have singles” in specialty that could “grow into doubles and triples.” That will be tougher now, she said.

As one of the last toy specialty chains, Toys R Us, which filed for Chapter 11 protection last September, has been a showcase for new and emerging brands. Two notable examples in recent years: it championed the U.S. launch of Shopkins in the middle of this decade, and launched the toy line for Daniel Tiger’s Neighborhood soon after the series began airing in 2013.

So the question is this: How will up-and-coming brands and properties find a way to bring products to market and will there be a savvy retailer, who will seize the “launching pad” position as a marketing advantage, and a point of differentiation to consumers.

No doubt mass market behemoths Walmart and Target will pick up a piece of the $11 billion in revenue that TRU had generated. And, of course, Amazon and its marketplace will take a big chunk. Channels such as dollar stores, supermarket/ drug and specialists such as Barnes & Noble and Party City could broaden their assortments.

But that’s about toy volume, not property incubation. The question hanging over those in the licensing business is who will step up to fill the latter role? While some point to the opportunity this leaves for smaller toy specialty stores, the volume they can generate isn’t large enough to support the development and manufacturing of a broad toy line.

One agent said that Target, which has shown more of a willingness than Walmart to take a chance on a new property (such as Beat Bugs last year), has quickly moved from being “one of the prom queen’s court to becoming the queen herself” among smaller properties hoping to get the chance to make a big impact.

Could the answer lie, perhaps in a name from the past? FAO Schwarz, which was bought by Three Sixty Group in 2015 from Toys R Us, has signed a long-term lease for a 19,000 sq. ft. flagship in New York’s Rockefeller Center that’s slated to open in September. (It also announced earlier this week that it will join with Hudson Group to open FAO Schwarz toy and candy stores in U.S. airports beginning late next year.) Three Sixty last year hired former FAO Schwarz president David Niggli as the retailer’s Chief Merchandising Officer. It wouldn’t be difficult to imagine that his experience leading a retailer that was built in large part around unique and hard-to-find brands could lead toward building a multi-store chain that could be a launching pad for little-known properties seeking a foothold.

Another licensing-specific question hanging over the bankruptcy is the status of any direct-to-retail (DTR) license agreements that TRU has. Though agreements commonly include language that would nullify an agreement if one of the parties goes bankrupt, it’s been doubted by some attorney whether that could be enforced, since the court could consider the license itself to be an asset. TRU is known to have several DTRs, among them a long-running deal for Animal Planet (owned by Discovery) plush.

In any event, the expected demise of TRU will challenge up-and-coming brands and properties to find a way to bring products to market; it’s an opportunity that, hopefully, a savvy retailer, will seize as a marketing advantage, and a point of differentiation to consumers.