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Who Will Fill the Void Left by Toys "R" Us This Holiday Season?

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The holiday season is nearing and retailers are rushing to fill in the void created by Toys “R” Us, which announced that it was going out of business earlier this year. Per The Wall Street Journal, toys make for billions of dollars of sales during the holiday season and the likes of Walmart, Inc. (WMT - Free Report) , Target Corporation (TGT - Free Report) and Costco Wholesale Corporation (COST - Free Report) are trying to make the most of the opportunity amid reports that the toy chain is trying to make a comeback.

However, filling in the void may not be that easy for brick-and-mortar stores given that they will face stiff competition from online retailers, with Amazon.com, Inc. (AMZN - Free Report) leading the race. Also, tariffs could hurt the domestic toy market as majority of the toys sold in the United States are made in China.

Retailers Rush to Fill the Void

Retailers are pushing hard to cash in on the opportunity created by Toys “R” Us. With the holiday season coming, demand for toys like every year is expected to escalate. Naturally, a number of retailers are rushing to increase their toy sales.

Walmart, Target, Costco and other brick-and-mortar stores are allotting more space for toys in hundreds of their stores. Party City Holdco Inc. (PRTY - Free Report) , which is more popular for party supplies, too has been trying to capture the toy space. The company is opening a number of temporary Toy City stores ahead of the holiday season.

Also, the FAO Schwarz brand, which was sold by Toys “R” Us to ThreeSixty Group in 2016, is trying to make the most of the holiday season sales. The toy retailer is planning to return to New York ahead of the first holiday season without Toys “R” Us.  

Amazon to Head Online Push

However, brick-and-mortar stores are likely to face stiff competition from online retailers, with Amazon racing ahead. Reportedly, Amazon too has plans of distributing toy catalogues at its Whole Foods stores.

In fact, Amazon may become a preferred choice for many shoppers to buy toys this holiday season. Per a recent survey by Stifel Financial, Walmart, Costco and Target shoppers are more likely to shop for toys on Amazon. According to a survey by research firm Gartner L2, Amazon topped search results for 95% of toy products, while Target and Walmart products float to the top for 60-80% of the search items. Target has a Zacks Rank #2 (Buy), while Amazon, Walmart and Costco carry a Zack Rank 3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Tariffs May Play Spoilsport

Filling in the void created by Toys “R” Us won’t be that easy. The company accounted for 15% of the total $27 billion toy market in the United States. The toymaker sold $1.4 billion worth of toys only in December 2017. Understandably, the opportunity is huge for retailers.

However, the trade dispute has been denting the confidence of retailers.  Trade war with China could hurt the toy market in the days to come, given that 85% of the toys sold in the United Sates are produced in China. Toy makers fear that another round of tariffs is likely to push up the price of toys, making business difficult.  That said, the demise of Toys “R” Us has definitely opened up a great opportunity for others and toy sales are definitely going to help these retailers this holiday season. 

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