Retailers scramble for toy sales without Toys 'R' Us

It's shaping up to be a rock 'em sock 'em holiday in the nation's toy aisles.

The liquidation of Toys 'R' Us has retailers on every front fighting for customers. They have added inventory, beefed up their websites and scheduled special in-store playtime events for kids.

The gloves are off among the surviving Big 3 toy sellers. Target has nearly doubled its merchandise from last year. Walmart is pumping up its stock by 30 percent in stores and 40 percent online. Amazon is expected to print its first toy catalog and market heavily to convert current non-Prime members.

But retailers across the board are jostling for a share of the estimated $3 billion in sales that analysts say is up for grabs from Toys 'R' Us.

Craft store Michaels has added more than 600 exclusive items. Kohl's is partnering with Lego and FAO Schwarz brands. Best Buy is selling stuffed animals and Barbie DreamHouses. Kroger will work with Geoffrey's Toy Box, among the remnants of Toys 'R' Us, to bring toys to nearly 600 stores.

"The toy retail space has been bustling with activity," Juli Lennett, toy industry adviser for the market research firm NPD Group said in a blog post. "If there's one thing I feel confident about, it's that the toy industry will be anything but status quo" in the fourth quarter.

The $27 billion toy industry — which includes games, dolls, outdoor sports and crafts — grew by 7 percent in the first six months of the year compared with last year, according to NPD Group. Most analysts forecast an even bigger year-over-year spike for the Christmas holidays.

For retailers, toys don't deliver particularly high profit margins overall, but they bring something retailers cherish even more: what they call "affinity."

It's the idea that buying toys makes people happy, and those positive feelings spill over to the stores in which they shop.

"We bring fun to customers," Best Buy spokeswoman Carly Charlson said. "We see toys as another form of entertainment."

The day Toys 'R' Us announced it would liquidate the bulk of its 800-store chain in the U.S., Minneapolis-based Target Corp. was hosting a conference with all its vendors. Executives seized the moment.

"We took the toy vendors specifically aside and said, 'Look. We can be a haven for guests and also for you as great partners in this changing time,' " said Target's chief merchandising officer, Mark Tritton.

In early summer, the retailer called for a second summit with toymakers and moved "with a high level of speed and agility," Tritton said, to make toys a larger and permanent focal point for the holiday season and beyond.

Target has taken the most aggressive stance in the toy category of any retailer this year, analysts said. It will offer more than 2,500 new and exclusive brands, with about 80 percent being "tried and true" items.

Making a longer-term stake, Target has remodeled the toy sections of more than 100 stores, including 22 in Minnesota. The retailer reclaimed space from CDs and other declining categories to add about 500 square feet of space — roughly three aisles — to more than 500 stores.

It lowered the height of shelves, added giant displays and incorporated the children's book section. Target designed souped-up play areas for kids to touch and play with things. It now has space to sell bigger toys, such as riding tractors, as well as musical instruments and playhouses.

The company doesn't release specific sales on toys, but researchers at Barclays Capital recently estimated toy sales at $4 billion to $5 billion, giving Target as much as one-fifth of the market. About half of the company's annual toy sales come in the fourth quarter.

Target "may have gotten a head start on the disruption in the industry," the Barclays report said, and is positioned to be a leader in the category.

The company has seen toy sales rise for 17 consecutive quarters — more than four years — including double-digit sales growth last quarter compared to a year ago.

"Given the strong affinity between families with young children and our brand, toys and baby will once again be key categories for us," Target CEO Brian Cornell said. The Toys 'R' Us closure has created "unique opportunities" to drive traffic and capture market share, he said.

Retail advisory firm Coresight Research believes that Walmart and Target shoppers have the biggest overlap with former Toys 'R' Us shoppers.

About half of Target's toy section remodels have been at locations within a 5-mile radius of a former Toys 'R' Us store, a strategy Tritton said already has reaped a "direct capture" of market share.

Walmart declined to address the fall of Toys 'R' Us directly, but said it, too, is placing a premium on toys.

"We bought deep and wanted to make sure there were no inventory shortages," Walmart spokeswoman Tiffany Wilson said.

The colors in Walmart's catalog match in-store signs to help shoppers find items more quickly. This year it hosted play dates at more than 2,000 stores in September and October, hoping kids would get an early start on their holiday wish lists. The retailer bases its merchandising strategy in part on input from focus groups — kids, of course. This year, the pint-size experts have ranked their top 40 toys, up from 25 in years past.

Amazon is making a big play as well. It rolled out its top 100 toys two weeks earlier than usual this year, in mid-September, and is expected to print its first catalog this year to display at Whole Foods locations.

NPD expects about 20 percent of Toys 'R' Us sales to "simply evaporate." Analysts predict that Target, Walmart and Amazon will vie for about half of what was the toy retailer's market share.

That leaves 30 percent for others, including independents such as Creative Kidstuff. The longtime Twin Cities mainstay's focus on specialty and educational toys and games has long separated it from mass merchandisers that can afford to make toys a loss-leader. Creative Kidstuff has beefed up its website, making it easier to shop by age or category.

The American Specialty Toy Retail Association said its members are expecting one of their best years in 2018.

About 25 percent of toy sales are sold online, and most retailers have made digital shopping easier. NPD Group's Lennett noted the flood of nontraditional toy retailers entering the space.

Party City, not known as a toy destination, is opening 55 toy pop-up stores nationwide through the first week of January, though none in Minnesota, and has launched a permanent website.

Best Buy produced a holiday toy book for the second year in a row, with pages this year brimming with toys that have nothing to do with electronics: T-Rex Fingerlings, Legos, Fisher Price toys, stuffed animals, Minnie Mouse and a host of dolls and trendy accessories.

A full 90 percent of the toy assortment is new to the Richfield-based retailer. Best Buy said these more traditional toys as well as consumer electronics such as PlayStations, video games, electric scooters and drones fall in lockstep with entertainment, which the retailer considers a "core need."

"We want to make it easy for customers to check off their entire gift list," Charlson said. "They may be coming to the stores to buy a TV, tablet or phone charger, why not also let them grab a Barbie or Lego set?"

Jackie Crosby • 612-673-7335

Staff writer Patrick Kennedy contributed to this report. Jackie Crosby • 612-673-7335