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.

banner

Most viewed in recent weeks

Australian house prices close in on world record

Sydney is set to become the world’s most expensive city for housing over the next 12 months, a new report shows. Our other major cities aren’t far behind unless there are major changes to improve housing affordability.

The case for the $3 million super tax

The Government's proposed tax has copped a lot of flack though I think it's a reasonable approach to improve the long-term sustainability of superannuation and the retirement income system. Here’s why.

7 examples of how the new super tax will be calculated

You've no doubt heard about Division 296. These case studies show what people at various levels above the $3 million threshold might need to pay the ATO, with examples ranging from under $500 to more than $35,000.

The revolt against Baby Boomer wealth

The $3m super tax could be put down to the Government needing money and the wealthy being easy targets. It’s deeper than that though and this looks at the factors behind the policy and why more taxes on the wealthy are coming.

Meg on SMSFs: Withdrawing assets ahead of the $3m super tax

The super tax has caused an almighty scuffle, but for SMSFs impacted by the proposed tax, a big question remains: what should they do now? Here are ideas for those wanting to withdraw money from their SMSF.

The super tax and the defined benefits scandal

Australia's superannuation inequities date back to poor decisions made by Parliament two decades ago. If super for the wealthy needs resetting, so too does the defined benefits schemes for our public servants.

Latest Updates

Planning

Will young Australians be better off than their parents?

For much of Australia’s history, each new generation has been better off than the last: better jobs and incomes as well as improved living standards. A new report assesses whether this time may be different.

Superannuation

The rubbery numbers behind super tax concessions

In selling the super tax, Labor has repeated Treasury claims of there being $50 billion in super tax concessions annually, mostly flowing to high-income earners. This figure is vastly overstated.

Investment strategies

A steady road to getting rich

The latest lists of Australia’s wealthiest individuals show that while overall wealth has continued to rise, gains by individuals haven't been uniform. Many might have been better off adopting a simpler investment strategy.

Economy

Would a corporate tax cut boost productivity in Australia?

As inflation eases, the Albanese government is switching its focus to lifting Australia’s sluggish productivity. Can corporate tax cuts reboot growth - or are we chasing a theory that doesn’t quite work here?

Are V-shaped market recoveries becoming more frequent?

April’s sharp rebound may feel familiar, but are V-shaped recoveries really more common in the post-COVID world? A look at market history suggests otherwise and hints that a common bias might be skewing perceptions.

Investment strategies

Asset allocation in a world of riskier developed markets

Old distinctions between developed and emerging market bonds no longer hold true. At a time where true diversification matters more than ever, this has big ramifications for the way that portfolios should be constructed.

Investment strategies

Top 5 investment reads

As the July school holiday break nears, here are some investment classics to put onto your reading list. The books offer lessons in investment strategy, financial disasters, and mergers and acquisitions.

Sponsors

Alliances

© 2025 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.