Richard Gottlieb

The Local Toy Retailer: A New Era?

We may be witnessing the beginnings of a renaissance for the independent toy store. I am continuing to hear from my sources that these stores began experiencing strong revenue gains in September and that they are continuing to experience them in October. 

Why is this happening and is it temporary? Here is what I think:

Why is it happening? 

Well the obvious reason lies in consumer’s concerns about safety, and if we needed a reminder, all we had to do was open the paper yesterday and read about Mattel’s fourth recall. If that wasn’t enough, we have had recent toy recalls for lead paint by everyone from JoAnn Stores to Dollar Tree to Wal-Mart. For God sakes, Dunkin’ Donuts even got into the act with a recall for a toy with a choking hazard.

Why, however, are shoppers migrating to local toy retailers? The most obvious reason is that they may be looking for toys that are not made in China. A not so obvious reason, and the far more important one, may be a strong desire to know personally who is selling them their toys. 

If you are a parent concerned about the safety of a product, you want to go where you can find accountability on the local level. You are not going to find it with that slack-jawed, hourly wage clerk back in the big box retailer’s toy department. You are going to find it in the face of your neighborhood toy retailer who personally chooses every product in their store and is becoming the face of toy safety. They are for all extents and purposes the only expert with whom a consumer can actually speak. 

Bottom line, in a market where lowest price is what drives decision making, the big discounter wins. In a market where safety drives decision making, the local toy retailer prevails. 

Is it a temporary phenomenon?

Maybe not. Here is why: No one is going to make the case that the majority of shoppers are going to migrate to toy specialty stores to make their purchases. In addition, no one is going to argue that, once things get back to “normal,” that all of those shoppers who do migrate to local toy retailers are going to stay there. Here, however, is the great news for these retailers: it just takes a small percentage of the industry revenue to move their way to make an enormous difference.

Gerrick Johnson is an Equity Analyst with BMO Capital Partners and a specialist in the toy industry.  He is, in addition to that, a very, very smart guy.  He made the point to me yesterday that all the independent toy store channel  needs to do is take and maintain 1% of those billions to have the makings of a total renaissance. According to NPD data, the “Mass Merchant/Discount” channel accounted for 55% of 2006 sales ($22.3 billion) or $12.27 billion.  As Gerrick says, 1%  of $12.27 billion is small potatoes to the big box stores. It is huge to this relatively small group of independent toy retailers.

It is going to be extremely important to the specialty toy segment, and to the whole industry for that matter, for the local toy retailers to figure out how best to invest these new dollars. It is hoped that existing merchants will open new stores and expand existing ones. 

What we don’t need is this potential windfall in revenue to create a bubble that results in a boom and bust cycle. It is therefore hoped that ASTRA, GAMA, toy manufacturers and other industry stakeholders provide guidance to these entrepreneurs in how best to seed and grow their businesses while at the same time managing risk. If everyone keeps their heads and plans wisely, we could see the beginning of a much needed boost to the entire toy industry.

Posted by Richard Gottlieb on October 26, 2007 | Comments (1)