Who Stands to Benefit the Most From the Toys 'R' Us Shutdown

Chris Lange

As we all know, the ongoing Toys “R” Us saga will be coming to a close. The toy superstore chain announced in U.S. Bankruptcy Court that it must liquidate, meaning that it is incredibly likely that it will be closing the doors for all of its stores and selling off the remainder of its merchandise.

Originally, Toys “R” Us was hoping to keep about 400 stores open. However, the firm does not have the cash to maintain that footprint and the cash burn would be too significant.

Accordingly, the firm is projected to run out of cash by May 2018. Also, it was said in the bankruptcy filing that Toys “R” Us has enough money left to pay its 33,000 workers for “no fewer than 60 days.”

There has been a great deal of speculation about which retailers will benefit from the likely collapse of the Toys “R” Us domestic operation. At or near the top of the list, Walmart Inc. (NYSE: WMT) has toy sections across thousands of stores and a huge online section, as well as Inc. (NASDAQ: AMZN) and Target Corp. (NYSE: TGT).

Toys “R” Us generated over $7 billion in sales in the United States in the year ended January 2017, which means that all this cash is up for grabs among major retailers.

While Amazon almost certainly will grow its toy sales on the back of the Toys “R” Us closures, Walmart and Target look set enjoy disproportionate gains. A recent research report from the Fung Global group presented results of a study among Toys “R” Us shoppers that browsed around other stores for toys in the past 12 months. Walmart and Amazon were tied at the top of this list, finding that 65.4% of Toys “R” Us shoppers browsed there as well. Target came in third at 63.6%, and dollar stores in general totaled 29.8% of shoppers.

Amazon may be in first place by total number of toy and game shoppers, but its appeal is not universal, and its leading position in toys is almost entirely attributable to Prime members. Almost three-quarters of Prime members surveyed who bought toys or games in the past year did so on Amazon. Among those who bought toys in the past year but did not have a Prime membership, less than one-quarter bought on Amazon. That places Amazon firmly behind Walmart, Target and Toys “R” Us among toy shoppers who are not Prime members.

Even though they are already in the top three, the firm believes that Walmart and Target look set to punch above their weight in terms of gaining shoppers from the Toys “R” Us store closures.