THE CHANGING LANDSCAPE OF ONLINE TOY SALES
Some big names are making big waves online (and in two stores).
As the holiday shopping season looms in the wings, a few previous powerhouses in the toy industry are making some big changes. Toys R Us has re-launched their website with some new features, and a curious partnership with Target. Walmart, not being satisfied with simply being an online and in-store juggernaut, is also looking for new ways to engage with kids, launching their own new web-related enterprise.
The interesting part about these new ventures is their motivation to do so. If you have a child under the age of 10, or are close with someone who does, you might be familiar with the YouTube “unboxing” trend that has piqued the interest of seemingly every toddler with a tablet.
For those of you who are unaware of this explosive trend, here are the cliff notes: it is literally videos of kids and/or parents opening up packaged toys and observing/playing with them. That’s it. While the phenomenon doesn’t make a ton of sense to parents (myself included), it has captured the whimsy of throngs of children, and amassed video views in the billions (there are just too many to count).
This craze, which is documented as long ago as 2014, is the motivating factor behind both the restructuring of the Toys R Us website, as well as the plans for the two new brick and mortar stores projected to open soon.
Some familiar brands with very different approaches.
Tru Kids Brands, the parent company of the previously bankrupt Toys R Us brand, announced it was teaming up with Target Corp. to bring back Toysrus.com. The two new brick and mortar Toys R Us stores will open in Houston and Paramus, New Jersey, according to this Washington Post article from July.
The stores will be drastically different from the originals. The new stores are designed to be more experiential. This is no surprise since b8ta, the startup that Tru Kids partnered with on the vision for the new stores, states their mission is “to create spaces where shoppers could try the latest products out of-the-box.”
The Toys R Us stores will be much smaller versions of their former selves, occupying a fraction of the space they used to. The new stores will feature open play areas, interactive displays, and have available special event space for birthday parties, instead of the rows of toys the bankrupt version of the retailer used to stock the shelves.
And then there is the website.
While rebrands and revivals aren’t uncommon following bankruptcy filings, it is unusual that a brand of Toys R Us’s stature would contract a third party for online sales. It’s even more bizarre that they’d outsource it to a competitor.
Toysrus.com looks and feels like the old Toys R Us from a brand perspective, i.e. they have toys to browse on a white-backgrounded website. New additions to the site include in-depth toy reviews, toy “trends,” and even a feature for their beloved giraffe mascot Geoffrey, showcasing his list of top picks.
The biggest difference, however, is that when you find an item you want to purchase, the “add to cart” button has been replaced with a “buy now at target.com” button. A disclaimer states “Clicking buy now will open a new window and direct you to this item on target.com. Pricing and availability subject to change.”
So, what exactly is the angle here?
Online sales have been on a steady incline over the past decade, and the competitive nature of the business has grown with it. There are more online outlets to browse. Price-comparing is now practically instantaneous. And faster delivery times will really make one think twice about dealing with some of the not-so-enjoyable aspects of shopping in-store.
But the question remains, if there are more stores chasing a slightly bigger piece of the e-commerce pie, how much sense does it make to share whatever sliver you get with one of your competitors?
We’ve discussed before, at length, that sometimes work is better to be outsourced when it makes financial sense. If it is cheaper to hire someone else than it would cost the amount of hours/manpower it would take you to do it internally, then of course, outsource.
What we have never discussed, however, is whether or not that means outsourcing to one of your competitors. From my marketing standpoint, at face value, it seems pretty bonkers. But, upon further analysis, maybe it isn’t?
Let's play the hypotheticals.
With only two stores set to open, and the company’s vow to operate without using debt to fund any measures, they’d have to have a good amount of capital to create enough inventory to “supply” whatever “demand” they would be hoping for with online sales.
And I hate to say it, but that’s going to require some math. But don’t worry, I’ll do it for you!
We could assume that if Toys R Us was operating to this day, profits could still be pretty high. According to the Washington Post article mentioned above, even when Toys R Us filed for bankruptcy, they were still posting annual sales of $11.5 billion.
According to the aforementioned sales chart, 14.3% of annual sales were e-commerce in 2018, which was up from 13% in 2017. Using that metric, you could conservatively forecast $1 billion in online sales for 2019, were they still in operation. That’s only 8.7% of the total revenue for 2018, so a pretty conservative guesstimate.
That’s also a heck of a lot to invest in inventory for a company re-emerging from bankruptcy and vowing to operate debt-free. That doesn’t account for the rest of the overhead for employees and facilities to make all of that happen.
So if being a direct, global online retailer is off the table, then what?
A (seemingly) unlikely partnership.
How about taking a slice of someone else’s pie! If the new Toys R Us website isn’t going to generate sales, the next best thing would be to become an affiliate retailer and just send the potential shoppers to a place they can make the purchase, taking a commission in the process.
Target and Amazon offer affiliate programs that give applicants a small percentage of sales generated from links embedded on their respective websites. Practically anyone can apply for these programs, and they offer anywhere up to 8% to 10% commission on sales, depending on the type of referral and the product being highlighted.
The financial part of the deal that Target and Toys R Us forged has not yet been disclosed, yet holds with it possibly the biggest piece to the puzzle. Who, exactly, is the ultimate winner in this venture? Toys R Us for creating revenue without the merchandise? Or Target, poised to capitalize on whatever brand equity remains from Geoffrey and crew?
Walmart, BuzzFeed, and Mattel join forces.
The partnership becomes more clear when you take into consideration what current sales juggernaut Walmart announced the same week. A press release announced the launch of Kid HQ, an interactive website for kids brought to you by media giant BuzzFeed, toy maker Mattel, Walmart, and interactive entertainment company eko.
Kid HQ is a platform for kids to digitally test out toys, rate them, and ultimately, create virtual wish lists for parents. The site features interactive videos that let kids navigate through a laundry list of toys they can watch the child-actors test out, and then invites them to add it to their “toy report” or pass and move onto the next toy.
According to the release, the driving force behind this plan is “for kids to experience the evolution of toy unboxing and offer parents valuable insights on what their kids really want.”
The toys that kids select for their toy report are then accessible by parents from the “Grown Up Only” floor of the website which organizes their selections into easy, click-to-buy items from the Walmart Toy Lab.
While that might raise alarms for some digitally conscious parents out there, the release states the site is “designed as a safe, open and COPPA-compliant experience for kids.”
But will the kids be here for it?
In either case, it’s an innovative attempt to change the shopping experience for kids and parents alike. Even more intriguing is the fact that these fairly sizeable shifts in business operation come from the “browsing” habits of today’s youth, who just seem to love watching other kids unbox toys on the internet.
It’s interesting to see these billion dollar companies, who aren’t really hurting for revenue, take the leap into experiential advertising at the same time. Or, maybe it’s just been a long time coming. Either way, it will be curious to see the success of both the interactive Toys R Us stores, as well as the numbers from this year’s shopping season, and who comes out ahead.
The bigger question will be: can these brands, and the companies tasked with creating their experiential endeavors, recreate the thrill and excitement of the unboxing videos? Only time will tell. But rest assured, the children will make sure their voices are heard, as this parent can confidently attest to.