Saturday, March 20, 2004

Toy industry turmoil We've written before about the increasing concentration in toy manufacturing and toy retailing. The few major toy companies (especially Hasbro and Mattel) are in a battle with the few major retailers. Those retailers consist of two kinds of companies: the toy specialists, who carry a variety of toys, and the toy discounters, who carry a small inventory at very low prices. Toys 'R' Us is the leader in the specialist category and the #2 toy seller; Wal-Mart is number one in the discounter market, and is the #1 toy seller period. Increasingly, the specialists are losing the war. In the last few months, two major specialists have declared bankruptcy. In December, FAO Schwartz, a smaller chain with an iconic brand for selling high-quality toys filed for bankruptcy. It has since sold off all its units to various buyers. In January, KB Toys, a national chain with over 750 stores, also declared Chapter 11. Its first step in the bankruptcy will be close over 370 of those stores. Toys 'R' Us, meanwhile, isn't doing so well, either. Its holiday sales were just so-so, and its profits were down significantly from the previous year. It is desperately trying restructure and recently had its credit ratings lowered. While by no means bankrupt, Toys 'R' Us is definitely on the defensive. Wal-Mart through its buying power, its willingness to discount below wholesale price, and its ability to get some exclusive deals on toys, is destroying the competition.  Wal-Mart really hurt the others by deep discounts on popular sellers at  the height of the  Christmas toy season last year. As pop-culture news Web site ICV2 reports: The growing use of exclusive products to maintain margins and drive sales for the retailer that has them can also impact heavily on other retailers. The scale of these exclusives can vary tremendously, from Wal-Mart's deal with Disney for Kim Possible products to Mezco's exclusive Run DMC figures for Toys R Us. Wal-Mart now controls well over 20% of the US toy industry, and the demise of its biggest specialty competitors will likely drive that market share up. True, a number of mom-and-pop super specialty stores will always be around to sell imported, educational, and hand-crafted toys from smaller manufacturers. But the shopper does not gain from the demise of the specialists, and the toy manufacturers are more than ever at the mercy of Wal-Mart, Target, Kmart and a few other discounters. As in so many other areas, Wal-Mart's decisions reshape the whole industry. 8:19:00 PM

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