Toys R Us Inc. may sell its toy business and put its retailing efforts toward its thriving baby product specialty store Babies R Us, the company said Wednesday, August 11. Plans to restructure the businesses to become two separate entities under the existing corporate structure are directed at reducing operating costs, boosting shareholder value, and developing growth of the core baby product market.
The toy and baby business operate in distinct markets and the company said current steps reflect each business’ different stage of growth, adding that the baby business is growing at a healthy rate.
“Overall, the strategic plan we are pursuing is intended to enable Babies R Us to continue to prosper as a separate entity while also putting our global toy business on a solid foundation,” said John Eyler, chairman and chief executive officer.
Separation of ownership would occur in the first half of fiscal 2005. The company also intends to liquidate much of its toy store inventory, taking $150 million in markdowns in the second quarter, but it has not yet decided how many stores will close.
The company did not site external reasons for the break-up.
The toy industry has faced continued competition from big-box discounters like Wal-Mart, and Target. Discount super-stores that sell everything from toys to groceries have beaten toy retailers at their own game and price wars are blamed for losses leading to the bankruptcy of FAO Inc.
According to a report by the NPD Group on the state of the toy industry with regards to market share in 2002-2003, 25 percent of all toys sold were sold through toy store channels, otherwise known as department or major chains, like Toys R Us. That figure hardly matches up to the 48.6 percent of all toys sold through mass merchant and discount stores, such as Wal-Mart.
The toy store channel has shrunk, with 26.3 percent of sales in ’02, down to 25.1 in ’03. Mass merchants, on the other hand, swiped the 1-plus percent to account for the increase in ’03, up from 47.3 percent of the market share in ’02.
NPD spokesman David Riley would not comment on possible causes for the break-up until Toys R Us announces a final decision. “The fact that they’re talking about divesting and actually doing it are two different things all together,” said Riley.
Richard Markee, president of U.S. toy stores will move to become CEO and president of Babies R Us. John Barbour, current president of Toys R Us International will replace Markee. John Eyler will remain as chairman and chief executive of the entire company.