Category-Killer Killed by Category, Remastered!
Revisiting the Toys R Us collapse in an article from March 27, 2018
Exactly six years ago today, Toys R Us imploded once and for all, and I was ready on the spot with an article talking about it on my old weblog, The Backstage Pass. The analysis still stands up, so I don’t think I have to annotate anything this time, but I will add in that part of what put TRU in a weak enough posture for their product situation to be untenable was the degree to which Bain Capital turned their equity into a toxic asset. The article does mention it, but I got feedback that suggested that readers thought I was trying to minimize that for some reason. Let that notion be dispelled by this being the only call-out I am even making, right here in the lede.
What was the rest of the story? Here we go!
Last week while I was at the 2018 GAMA Trade Show, Toys R Us announced what we all knew was coming before much longer: the imminent closure of all their stores. Just like that, another fixture of 1990s category-killer big box retail is gone, and once again Lewis and Dart were right in their Rules of Retail about the way the trend winds are a-blowin'.
Toys R Us, the ubiquitous TRU, is in the midst of a live postmortem even as its corpus expires. Yes, we all know Bain Capital basically eviscerated them with debt and that's some garbage shenanigans right there. But that's what happens when you let financiers have enough political pull to exploit holes in the system. I contend that TRU was a dead store walking even if that had not happened, and indeed, it was flawed in ways that made the leveraged move possible to begin with.
I contend that a non-trivial part of what killed TRU was the internet. Not e-commerce sales as such, but the hyperacceleration of hobby-grade collecting made possible by the communication magnum leap that the internet made possible. A formerly well-rounded market for toys got split into white-hot unobtainium and dead-on-arrival bulk. When this happened, a big-box mass-market process-mastered retail giant was nowhere near in position to pivot. Too much of their asset base turned toxic overnight, and their processes ensured that it would continue to reload toxic for years.
Picture this. It's the mid-1990s. Kenner brings back the Star Wars action figure scene with the "Power of the Force 2" figures, and they quickly explode into a litany of shortpacks, variants, and every such thing. In the days that were, a few dedicated collectors had the leisure to treasure-hunt stores for the special figures, and nobody else cared. Meanwhile, mainstream buyers just wanted commons like Luke and Vader. In the Usenet groups like alt.toys.collecting, it was a different story. Coordinated groups pored over case assortment data and shipping schedules. TRU, Target, and Wal-Mart became late-night and early-morning buying spots for nascent flippers chasing after that one-per-case from the latest wave, or the special chain exclusive. And eBay already existed, so things proceeded as you might think. Ultimately large batches of stock became deadwood, and TRU lacked sufficient, uh, nimbility to do anything but dump skids via reclamation channels, earning dimes to the dollar.
After POTF2, there were Beanie Babies. Oh, lord, were there Beanie Babies. Tickle-Me Elmo. Furby. Pokemon cards (hey now). Skip forward across years of hot figurines and video games and you get to last year's Fingerlings and Hatchimals. Nintendo Amiibo figures were emblematic of the market shift: ultra-demanded rare figures interspersed with cartons and cartons of bulk commons. It doesn't scale. By definition it's an attempt to move product in the market in a way that defies scalability and efficiency. That's what makes the toy desired. And it's exactly what TRU was not built to handle.
This led into the modern secondary market where everyone is a flipper and Craigslist is our cesspool. Where pickers scour garage sales for the brands they know they can rip off the host the most on. Where nobody can just enjoy anything anymore, there's always an angle. Captain Sternn would be delighted, were he still alive.
I'm not suggesting that a bunch of half-circle glove Boba Fetts brought down a Fortune 500 company. I'm saying that there was a tectonic shift in the nature of entertainment merchandise and collectible merchandise, and that part of the Venn diagram where they overlap, crushed TRU between its mighty plates. No grocer could survive if 90% of its milk and produce spoiled before purchase, because people only wanted the variant milk and limited-edition bananas. At MSRP, natch.
That’s all I’ve got for today, thanks for joining us for another Backstage Pass remaster!