Could Amazon buy Toys R Us?

The Baby Industry is One Big Game of Chess

Toys R Us seeks 120£ from investors immediately in Britain

According to a story published in The Telegraph today, Toys R Us is seeking 120£  from investors immediately to help fund payment deadlines at the end of the month. 50£ is needed by the end of the month. An additional 70£ would fund changes to the stores and price reductions to the products. In Britain, Toys R Us has closed 26 stores and laid off 20% of the staff. In the United States, they recently closed 180 stores, including two stores in St. Louis where my company is located.

The article says, “Fears over its fate are mounting. Sources said Toys R Us was likely to collapse within weeks without a major cash injection.”  Toys R Us operations in Britain are a separate entity from it’s USA operations. While these comments refer to British operations, the crisis the company is facing as a whole is significant and concerning.

I own two brands that are currently sold in Babies R Us stores in the United States. The Babies R Us brand is owned by Toys R Us and often co-located within the same store.  As someone with a financial interest in the baby space, I am closely following this story.

In 2002, Babies R Us agreed to let Amazon take care of the fulfillment side of their online operation (CNET).  This gave Jeff Bezos the opportunity to learn the category.  “It is certainly the case that while we aspire to have the merchandising skills of a Toys ‘R’ Us, it would be foolish to believe we have them today,” said Bezos. Over the last 15 years, Amazon has learned how to sell and merchandise products. They have (affiliate link) good product merchandisers and an open approach to how they buy brands for product categories.

Toys R Us also has some really smart people helping them right now. Toys R Us understands the baby and toy category better than any other company in the world, and with the right help, they may be able to right-size their operation and save the business.  Even with a bankruptcy filing behind them, most vendors have continued to ship product.  It would take some significant website and app improvements to get technology current, but the business is in a strong strategic position to help consumers with baby and toy needs moving forward – and do it better than Amazon.

It’s been rumored in the industry that Amazon is interested in opening physical baby stores.

As the single largest holder of real-estate in the baby category, Toys R Us is also an interesting acquisition opportunity for the right buyer.  It’s been rumored in the industry that Amazon is interested in opening physical baby stores. Registry patterns have shown new registries shifting from Babies R Us to Amazon (Baby Center) over the last few years.  Opening Amazon Baby or Amazon Toy stores in each of the Toys R Us or Babies R Us locations might be a solid strategy for Amazon.

That said, Amazon’s acquisition of Whole Foods was significant. If they focus on more physical storefronts, the cost basis for the entire company will change. It is expensive and complicated to manage the requirements of having a physical storefront. Recent reports indicate that the Whole Foods transition hasn’t been without difficulty. If costs increase for Amazon, the price of products will go up.  This will increase market opportunity for competitors, potentially changing the market consolidation we are observing in the retail industry today.

Toys R Us may not recover. A recent news article on CNBC about dismal holiday sales in their stores and deeper discounts than previous years during their fourth quarter didn’t invoke much confidence.  Another retail giant may close their doors this year, leaving a wide-open opportunity for small independent retailers to capture local business.

They might get through this and, if they do, be a leaner, more efficient business that is ready to take on the world in an interesting new way.

As the single largest baby retailer in the world navigates a major financial crisis, the entire industry has been catching a breath with every piece of news. I find it interesting to play chess pieces out on a board. The chess pieces are moving around right now. Things are certainly changing.

Jenn is the Founder and CEO of Cotton Babies. She holds an Executive MBA from Washington University. She was awarded Ernst & Young’s Entrepreneur of the Year award in the Emerging Category for the Central Midwest Region in 2011. Among many other awards, she recently received a 2017 YWCA Leader of Distinction Award for Entrepreneurship. Jenn holds many patents on various inventions in a number of different countries and is listed as one of 50 Missourians You Should Know. She is particularly fascinated by languages, chickens, and children (she has four) when she’s not reading economics journals.

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