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Risk-meter: How companies are affected by Toys “R” Us store closures

While filing for Chapter 11 bankruptcy protection in September last year, Toys “R” Us had stated that it would continue running its stores as usual. However, by the end of a disastrous holiday season, the company was pretty sure it could not keep operating at mounting losses, thus announcing the closure of all its US stores earlier this month. This decision had an impact of varying degrees on numerous companies in the toy-making and retail sectors.

Mattel (MAT) is, beyond any doubt, the worst affected by the liquidation due to the mere factor that Toys “R” Us is one of its largest retailers besides Walmart (WMT) and Target (TGT). The maker of Barbie and Hot-Wheels, which was already under immense pressure due to declining revenue and rising losses, have now lost shelf space that accounted for around 20% of its US sales.

By the end of 2017, Mattel reported only three-quarters of the revenue it managed four years ago. Operating losses had also mounted to $343 million. Now, the liquidation of over 700 stores would mean that its inventory reaches the market at a much discounted price. It also puts Amazon (AMZN) at a greater advantage, which is known for aggressive discounting, to put pressure on Mattel to reduce the prices of its products by cutting down its margins. All this would have a grave impact on the toy-maker in the short-term.

The case is similar for Hasbro (HAS) since around 8% of its total sales were handled by Toys “R” Us. However, the Monopoly game inventor is financially not as weak as Mattel. Hasbro has reported increased sales over the years and boasts of a healthy margin as well. Hasbro is definitely going to get hit by the liquidation, but not as much as its rival.

Besides these two toy giants, private toymakers who are expected to feel the heat include Lego and Jakks Pacific. On the other hand, SpinMaster, which is known for its Hatchimals, will thrive due to its diverse sales platforms that range from bookstores to drugstores.

Meanwhile, the companies that are actually going to benefit from Toys “R” Us closures are the retailers who have lost a big competitor. Walmart, Target and Amazon now get a bigger pie in the toy market.

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