How Toys R Us's collapse has focused Hasbro's digital thinking

Stuart Lauchlan Profile picture for user slauchlan July 23, 2018
Summary:
Hasbro was heavily exposed when Toys R Us collapsed, but an omni-channel shift is filling the void.

toys hasbro
The most high-profile retail sector collapses of recent times is almost certainly Toys R Us, whose demise has left a $6.5 billion hole in the US toy market alone. Of course, one firm’s demise is another firm’s opportunity - or several firms in this case - but the failure of the business feeds back down the supply chain.

One firm that’s been caught in the backblast is toymaker Hasbro, owner of some iconic brands ranging from Monopoly through Power Rangers to My Little Pony. Toys R Us accounted for 10% of the firm’s total sales, leaving many commentators and investors to get skittish about the negative impact the disappearance of this channel would have.

In the event, while Hasbro has seen a clear hit to revenues, the firm has moved quickly to address the problem, finding new physical outlets, such as Walmart and Target, but also beefing up its online business to take more control of its own route to market.

CEO Brian Goldner reckons that by next year the firm should have “moved beyond” the baggage of Toys R Us, indicating that the absence of the retailer from the market is encouraging others, online and offline, to seek partnerships.

We can work with all of our other retailers and incentivized to do that. We're agnostic about how we grow. I think you're going to see linear footage expand this holiday as it has in past holidays because people are very excited about giving fans and families the opportunity to shop and have that wonderful Christmas holiday experience and give kids and families the opportunity to see product on display and immersive entertainment experiences at retail.

Expect to see a lot more around online and omni-channel initiatives, he adds:

Our team is working on number of content-to-commerce initiatives and other ways of connecting. Clearly at least three quarters of [retail store visits] are being informed by some online shopping as well, where people are trying to determine what it is they're interested in. They may have look at a short video or some piece of content or search for the product. So I think what we're really talking about and what we've try to mention a lot is that this idea of converged retail is really taking hold not only in the US, but around the world.

So what we're providing and the teams are working on is digital engagement and in-store engagement that marries up, that connects consumers to our experience. Consumer insights, innovations and those story-led initiatives, whether it be some bespoke content or user-generated content because our fans are so engaged, all contribute to the to the process of selling.

Evolving market

A lot of this is being rolled out in Europe at the moment, where Goldner identifies:

an evolving retail environment, which is characterized by a rapid growth in online purchases and the changing dynamics of brick-and-mortar retailing….We accelerated our investment to create a modern commercial organization in Europe, with the right cost base for this new omni-channel marketplace. Our brand blueprint enables us to capitalize on this converged retail consumer behavior by delivering content-to-commerce, digital marketing and innovative product offerings across all channels of retail.

This is working, he adds, and providing a foundation for growth:

Online point-of-sale for Hasbro products continues to grow at a rate several times faster than overall retail. We've established a global online team to ensure that we are investing in the analytics, supply chain, and consumer programs which drive profitable growth. We are investing in digital media and marketing to develop direct-to-consumer engagement around the world. We are also creating online exclusive products and programs to support many of our retailers, including Walmart and Target, and retail event such as JD.com's J.D. Day, Amazon’s Prime Day and 11 out of 11 AliBaba sales days.

All of this makes the CEO confident that the all-important Holidays season will be a healthy one:

Given the work we’ve doing with our major partners, that we’ve been in business for years, and the new opportunities for online and omni-channel, combined with some retailers that will focus on some specific audiences, I actually expect that the amount of promotion and linear footage available to the toy industry for the Holidays could be very similar to last year's Holidays.

My take

As noted, every problem is someone else’s opportunity. This is an opportunity for Hasbro to drill down on its omni-channel thinking and to own more of its own relationship with its customers.

Assuming Goldner’s upbeat assessment is correct and the Toys R Us shadow disappears, there’s still one potential problem looming - the prospect of President Trump pushing further into a trade war with China, where Hasbro does 70% of its manufacturing today. There are plans to reduce that over the next few years, but only by 10%. So the prospect of tariffs being imposed isn’t an appealing one. Goldner is quite clear:

In terms of the tariffs, we've been working with and talking to the administration and our Congressional delegations to ensure we're communicating just how terrible an impact the ongoing tariff or trade war would be. Thus far we've only seen non-material changes to the tariff schemes of other countries that don't really impact our business. Our toy business is not been part of the 303 designation that is currently been put in place. But we continue to monitor the situation and we continue to talk [about] and firmly believe in a free trade environment as the best course for our company and for the industry.

The demise of Toys R Us could turn out to be the least of Hasbro’s problems...

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