Register For Our Mailing List

Register to receive our free weekly newsletter including editorials.

Home / 266

Lessons from the endgame for Toys 'R' Us

  •   Alex Wu
  •   6 August 2018
  • 1
  •      
  •   

After failing to secure a buyer, Toys 'R' Us (Australia) Pty Ltd has closed its 44 toy and baby goods stores, affecting approximately 700 employees. The closure has come as no surprise following the parent company, Toys 'R' Us Inc., filing for bankruptcy. The company’s online store was shut down in June 2018 and the retail stores closed on 5 August, after an inventory clearance sale.

Inability to adapt to change

The demise of Toys 'R' Us can be attributed to the company’s inability to adapt to changes in the Toy and Game Retailing industry. Industry operators have faced intense competition from online retail giants over the past five years. Amazon has dominated the US online toy sales market earning double the Toys 'R' Us’ revenue in 2016. Toys 'R' Us Inc. outsourced its online business to Amazon in 2000. While Amazon grew rapidly, Toys 'R' Us never managed to catch up with the online trend. After Toys 'R' Us was acquired by private equity firms in 2005, the company accumulated significant debt and consequently lacked the resources to invest in building robust online infrastructure.

The Australian Toy and Game Retailing industry has struggled in recent years, with revenue only increasing at an annualised 1.4% over the five years through 2017-18. However, Australia Post’s Inside Australian Online Shopping report shows that online game and toy sales have increased strongly, including a rise of 19.2% in 2017. Toys 'R' Us’ offline operations have also been challenged over the past five years. Department stores represent a significant source of competition for operators in the Toy and Game Retailing industry. Department stores such as Kmart and Big W offer a wide range of products at lower price points, due to their strong bargaining power and economies of scale. Being a specialised retail chain has limited Toys 'R' Us’ potential sales.

When one door closes, another opens

However, the exit of Toys 'R' Us represents a significant opportunity for Associated Retailers Limited, the owner of Toyworld, which is the major competitor of Toys 'R' Us in Australia. Toyworld has adopted the same traditional strategy as Toys 'R' Us, which focuses on bricks-and-mortar stores. There are currently over 120 Toyworld stores across Australia. Many parents are expected to turn to Toyworld’s retail chain.

Associated Retailers Limited’s revenue in the Toy and Game Retailing industry has declined in recent years, from a peak of $230 million in 2014-15 to an estimated $190 million in 2017-18. Intense competition from online operators and department stores has affected the company’s performance. These challenges are expected to continue for the overall industry in the current year, with industry revenue anticipated to decline by 0.5%. However, the exit of Toys 'R' Us represents a significant opportunity for Associated Retailers Limited, if the company can avoid the same challenges that led to the closure of their main competitor.

 

Alex Wu is a writer for IBISWorld's Analyst Insights.

  •   6 August 2018
  • 1
  •      
  •   
banner

Most viewed in recent weeks

Why have Australian living standards 'fallen' and how do we fix it?

For the last few years there has been much talk of a 'cost-of-living' crisis in Australia and of 'falling living standards'. Lately this has flared up again with the pickup in inflation resulting in a renewed fall in real wages.

Will you run out of money in retirement?

Fear of running out has become a defining retirement anxiety. Why do some retirees die with substantial wealth while others deplete their nest egg? Evidence suggests the answer is more complicated than we think. 

Four options for an income investor’s next dollar

What if Australia’s golden age of dividends is ending? Rather than overhaul your portfolio, it may be worth considering where new capital can work harder. I discuss four income strategies and the trade-offs behind each.

The investment that sidesteps the new tax traps

Tax rules have changed, but many investors are still using yesterday’s strategies. Insurance bonds may offer advantages for those seeking greater control, tax efficiency and certainty about their wealth.

Welcome to Firstlinks Edition 674 with weekend update

What begins as appetite, grows into excess and ultimately ends in spectacle. Millions of investors just discovered this the hard way.

  • 6 August 2026

Testamentary trusts have secured the CGT exemption

Treasury’s latest CGT reform draft delivers a win for testamentary trusts and deceased estates, exempting estate-derived gains from the 30% floor. However, questions on death and divorce rollovers remain unresolved.

Latest Updates

Retirement

Why spending more in early retirement can improve lifetime income

Conventional wisdom encourages retirees to preserve superannuation. But if those likely to qualify for the Age Pension later in life spend a little more today, it may deliver higher lifetime income and a more stable retirement.

SMSF strategies

Who really loses from the SMSF borrowing ban?

The ban on borrowing to buy residential property inside a self-managed super fund was framed as closing a loophole for the wealthy. Yet ATO data suggests its effects may be felt more heavily on members with moderate balances.

Investment strategies

The investing rule that explains the next market crash

What if investment success depends less on picking the right assets and more on understanding the decisions of other investors? A principle borrowed from game theory offers a different perspective on markets.

Investment strategies

Gold: should you own the metal or the miners?

Gold is back in the headlines but investors may be asking the wrong question. Before deciding where prices are headed next, it's worth considering whether the investment you choose will deliver the outcome you're actually seeking.

Fixed interest

Global bonds markets are hiccupping

For decades, investors looked the other way as government debt ballooned. But a reckoning may be beginning. Bond markets are stirring and the consequences could reach far beyond markets into everyday life.

Property

Why investors are looking beyond traditional property sectors

A little-known corner of the property market may be quietly benefiting from powerful demographic and healthcare trends. Could this specialised sector offer investors something increasingly difficult to find: enduring demand?

Retirement

Retirement in reality - 6 months in

Is retirement really an identity crisis, or is something else at play? New insights challenge conventional thinking and reveal why some retirees struggle to fully embrace life after work.

Sponsors

Alliances

  • ASA-Logo-RGB-ActiveGreen-web.png

© 2026 Morningstar, Inc. All rights reserved.

Disclaimer
The data, research and opinions provided here are for information purposes; are not an offer to buy or sell a security; and are not warranted to be correct, complete or accurate. Morningstar, its affiliates, and third-party content providers are not responsible for any investment decisions, damages or losses resulting from, or related to, the data and analyses or their use. To the extent any content is general advice, it has been prepared for clients of Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), without reference to your financial objectives, situation or needs. For more information refer to our Financial Services Guide. You should consider the advice in light of these matters and if applicable, the relevant Product Disclosure Statement before making any decision to invest. Past performance does not necessarily indicate a financial product’s future performance. To obtain advice tailored to your situation, contact a professional financial adviser. Articles are current as at date of publication.
This website contains information and opinions provided by third parties. Inclusion of this information does not necessarily represent Morningstar’s positions, strategies or opinions and should not be considered an endorsement by Morningstar.