With Toys R Us gone, billions of dollars in sales are up for grabs for retailers

When billions of dollars are left lying on the sidewalk, someone’s going to pick them up. The only questions are who and how much.

With the all-important holiday season rolling in, the downfall of Toys R Us has America’s retailers angling to increase their shares of the market for Hot Wheels, Legos, Barbie dolls and the like.

It’s a tricky proposition. While toys drive traffic through the doors — a big plus for hard-pressed brick-and-mortar merchants — their profit margins tend to be relatively low, said analyst Paula Rosenblum, co-founder and managing partner at RSR Research. A retailer may not want to sacrifice sales in, say, women’s apparel in order to boost toy revenue.

“It’s all a math problem,” Rosenblum said.

Still, it looks like $3 billion to $4 billion is out there waiting to be scooped up. That’s about what Toys R Us took in from toy sales in the U.S. in 2016, the last year for which it reported financial results to securities regulators.

The company filed for bankruptcy in September 2017. It shuttered its stores this year.

Toys R Us isn’t quite dead. The firm remains in court-supervised reorganization, and its debtors recently said they plan to create a new company capitalizing on the Toys R Us and Babies R Us brands.

But while that’s a possibility, what’s certain is that hundreds of buildings across the country that formerly held large toy stores now stand empty, and billions in sales are going to go elsewhere.

Most of that money, analysts say, probably will be scooped up by the usual suspects — Walmart, Target and Amazon.

But Menomonee Falls-based Kohl’s also stands to gain — though to a lesser extent — and retailers not generally known for toys could pick up some side business.

Drug stores such as CVS and Walgreens will see some benefit, said Mark Cohen, a veteran retail executive who now is a business professor at Columbia University.

“I think that supermarkets are going to be showing end caps with toys on them that they might not (have) otherwise,” he said.

Meanwhile, party-goods and costume specialist Party City has opened dozens of temporary Toy City pop-up stores across the country, including one in the former Toys R Us at Madison’s West Towne Mall.

Also in the mix: Appleton-based Fleet Farm and Janesville-based Blain’s Farm & Fleet, similarly named but separate retailers that open large toy sections inside their stores for the holiday.

RELATED:Fleet Farm's annual Toyland tradition continues in Oconomowoc

“There are definitely some sales out there for grabs, but I think it’s going to be very aggressive,” said Brian Yarbrough, a retail analyst with Edward Jones & Co.

With Walmart, Target and Amazon probably splitting most of the former Toys R Us business, look for intense price competition, Yarbrough said.

“Anytime you’ve got Walmart and Amazon in there, you should expect pretty aggressive pricing,” he said.

Walmart has said it will add toy aisles in some stores and boost its online toy selection by 40 percent.

Target last week said it will add an average of nearly 500 square feet of space for toys at 500 of its 1,800 stores.

RELATED:Target to offer more exclusives and activities in first holiday season without Toys R Us

Amazon reportedly plans to publish a print toy catalog that would be mailed to households and distributed at the company’s Whole Foods stores.

“The big players are going to do to everyone else what they did to Toys R Us,” Cohen said. “They’re going to savage anybody else … being ultra-competitive.”

Toys are something of a side gig for Kohl’s. The company’s department stores average 71,000 square feet of selling space. The largest toy department among four full-size Milwaukee-area Kohl’s stores visited totaled about 1,350 square feet.

But the retailer has added Lego and FAO Schwarz toys to its selection. And retail analyst Burt Flickinger of Strategic Resource Group said Kohl’s will grab more toy business simply on the strength of the chain’s overall appeal to women.

“Anybody that’s got women in their stores is going to sell product,” Flickinger said. “Women buy at least 85, 90 percent of the toys.”

Robert W. Baird & Co. analyst Mark Altschwager sees Kohl’s benefiting from the closing of Toys R Us in another retail segment — baby clothing.

Babies were a big business for Toys R Us. In 2016, it sold $2.6 billion worth of goods in the U.S. for children up to 4 years old, including clothing.

With its partnership with national brands such as Carter’s, Kohl’s is well-positioned to capture a greater share of the baby apparel market, Altschwager said via email.

Even as the various retailers vie for more toy sales now that the sector’s category killer is gone, they’ll have to wrestle with more than price competition and tight margins.

Toys are the ultimate seasonal product, Cohen said. And while Toys R Us could hold onto unsold holiday merchandise for months afterward, department stores will want to clear shelf space for more profitable goods, which means discounts, he said.

“It’s a business that’s treacherous in that regard,” he said, “because the market for toys, which explodes at holiday time, disappears largely for the balance of the following year.”

Add to that, he said, the challenges of identifying the hottest toys as tastes change rapidly and the worry that the bubbling trade war with China could be extended to toys and drive up wholesale costs.

All of which suggests that, for retailers, toys might not be much fun. But on that, Cohen disagrees.

“It’s an exciting business,” he said.