A holiday season without Toys R Us looks less cheerful

The toy industry suffered a hard blow when Toys R Us went out of business but the challenges are far from over. There is a large chunk of toy sales available for grabs in the vacuum created by Toys R Us and all the major retailers are looking to take a piece of it this holiday season, as per a report by WSJ.

Although no one can take the place of Toys R Us in terms of selection, top retailers like Target (TGT), Walmart (WMT), Kohl’s (KSS) and Amazon (AMZN) are upping their efforts to capture as much share of the toy sales as possible by offering the best products.

Retailers are allotting more space for toys this season and most of them are likely to give importance to the most popular brands and toys. Target and Walmart are planning on increasing their space and inventory for the holiday season and on keeping a steady supply of stock throughout the period.

During the final weeks of the season, the number of shoppers are likely to increase while stocks decline. Toymaker Mattel (MAT) believes proper planning and execution in terms of brands, location, quantity and timing are important to ensure success this holiday period.

Taking this factor into account, Walmart and Target plan to focus on stores closest to the former Toys R Us locations. Although there are reports of Toys R Us planning a comeback, it will take time and will not happen this holiday season.

The toy industry, which already suffered from the bankruptcy of Toys R Us, is likely to face another hit from the ongoing trade war with China, says a report by CNN. A major portion of the toys sold in the US are made in China and the next round of tariffs are likely to drive up their prices if and when it gets implemented.

A major portion of toys sold in the US are made in China and the next round of tariffs are likely to drive up their prices when implemented

The usual solution offered by the current administration on tariffs, which is to move production back to the US, is not practical due to issues with labor and the seasonal nature of the business. Major toymakers like Hasbro (HAS) and Mattel do not have plans to move production back to the US and while shifting production out of China can be considered, it will not happen anytime soon due to factors such as costs and lack of facilities in other countries.

For the most recent quarter, Hasbro reported declines in sales and profits due to the Toys R Us liquidation while Mattel reported a loss along with a drop in sales. Both Mattel and Hasbro’s revenues declined across most segments and regions but Hasbro still seems to be in a better position than Mattel thanks to the strength in its Entertainment and Licensing business.

Looking at the past three months, Mattel’s stock is down 13% while Hasbro is up 5%. As of 10:30 am ET, Mattel is up over 2% while Hasbro is down slightly.