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

2 billion reasons to fix retirement income

A proposal to address Australia's 'stranded balances' in retirement by requiring super funds to transition members to pension phase at 65, boosting retirement income and reframing super as a source of income.

The ultimate superannuation EOFY checklist 2026

Here is a checklist of 28 important issues you should address before June 30 to ensure your SMSF or other super fund is in order and that you are making the most of the strategies available.

Do super funds need a massive wake up call?

UK retirement expert, Guy Opperman, believes super funds are failing at supporting members in deaccumulation. Here is what Australia should do about it. 

Two months into retirement

A retirement researcher's take on retirement and her focus on each of her six resource buckets to stay engaged during the transition and beyond.

Welcome to Firstlinks Edition 662 with weekend update

The debate over the budget is increasingly shaped by frustration and perceptions of unfairness, rather than clear-eyed assessment of policy outcomes.

Reforming the taxation of wealth and wealth transfers

As the budget approaches debate continues about the need and method for addressing wealth inequality. Could reinstating wealth transfer taxes be the answer?

Latest Updates

Back to the future - Why indexing CGT is a good idea

A return to indexation of capital gains would be a fairer way to compensate households for the effects of inflation than the current discount. Importantly, it opens the door to future, broader reforms to stop the taxation of inflation.

Australia has no death duties. Technically.

Australia may not levy formal death duties, but a growing web of tax measures is quietly shaping what wealth passes between generations. Now, the 2026 budget adds another layer.

Strategy

The folly of the Iran war

From oil shocks to fractured alliances, the Iran war carries the hallmarks of a historic policy misstep - one that could tip an already fragile global economy into crisis.

Taxation

Noel Whittaker’s take on the budget

Marketed as a fix for inequality and housing affordability, the latest budget instead delivers a tangle of tax changes that leave everyday Australians worse off.

Investment strategies

The red metal's long game

Copper has had a rough few weeks but investors should not ignore the potential for future price increases as supply increasingly falls behind demand.

Taxation

The lesser-known effects of changed property taxes

The budget’s property tax reforms are being framed as fairness measures, but they risk splitting the housing market, penalising lower‑income investors and introducing distortions that may prove costly.

Latest from Morningstar

Why stocks sometimes fall for no obvious reason

The vast and opaque world of private assets is a powerful gravitational force - and when trouble hits, it's the more liquid public equities that often the feel it first.

Sponsors

Alliances

© 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.