The big business of toys

If legends are to be taken at face value, somewhere far up North, a bunch of elves are working very hard to craft every toy, every doll, every train that children around the world want this holiday season.

While those creatures — and their red-suited delivery driver — might get all the acclaim, retailers know that much of this wouldn’t happen without them.

Like some Claymation drama, however, toys are under threat, stuck on boats in harbors, in short supply. A quick scan of the news shows that organizations like the Salvation Army and Toys for Tots are seeing a greater need but also a shortage of donations.

“Usually, the holiday season is marked by ‘the hottest toys,’ but this year should be particularly challenging,” says Nikki Baird, vice president of retail innovation for enterprise tech firm Aptos.

“Toys have been difficult to keep in stock in general as parents sought ways to entertain kids stuck at home. But the pipeline of character-driven merchandise has been drained. Retailers and brands had plenty of warning to scale back on toys associated with major blockbusters by summer of 2021, and without those blockbusters to help drive must-have toys for holidays, shoppers are going to find few choices and a reliance on old stand-bys that will be just as hard to get as they were last year.”

Can this holiday season be saved? Cue the dramatic music, but Stephen Moore, general business manager of toys at Macy’s Inc., sees both supply and opportunity. “Our team proactively started working to mitigate any supply chain disruptions early on, and we feel good about inventory levels in high gifting categories, including toys, this holiday season,” Moore says.

In-store or online?

Moore’s confidence comes at a time when Macy’s toy business has grown exponentially, thanks in part to an alliance with Toys “R” Us, the perennial brand favorite that left physical retail in recent years.

In 2022, some 400 Macy’s locations will open Toys “R” Us stores inside their footprint. “Customers will be welcomed by Geoffrey the Giraffe before discovering and playing across dedicated sections by age, interest and category, with interactive experiences, activation centers and iconic elements throughout,” Moore says.

For holiday 2021, that alliance will have been all online. But even without the ability to test-drive toys before purchasing them, the relationship showed a quick return.

“Since bringing the Toys “R” Us business to macys.com in August, our toy sales have more than doubled in stores and online compared with 2019,” Moore says. “Toys is also a customer acquisition category. It gives us the opportunity to personalize customer shopping experiences further after their purchase and introduce other categories to them.”

Toys “R” Us is making its own physical return, announcing a flagship store in the American Dream mall in New Jersey in early December. It promises a café, ice cream parlor and slide linking the first and second floors — and is scheduled to be open by mid-December.

In retail in general, Baird sees retailers moving more toward a unified commerce experience instead of a siloed in-store experiential retail — and the same applies to toys, she believes.

“In part, this is because more and more toys have some kind of digital dimension to them, so retailers need to be prepared to show both the physical and the digital life of toys in context. It’s also because toys in general have a lot of rich information about them that shoppers want to be able to take advantage of in the store — more so than for a lot of other products — information that is most easily found in digital channels,” she says.

“So, if you think of experiential retail in toys as the old FAO Schwartz model of ‘come in and play with all the toys,’ think instead more like, set up gaming competitions where we stream them on Twitch, or customize your stuffed animal or remote-control car and get a digital avatar you can share online. That’s more the future of experiential retail, where it’s much more blended.”

Experience needed?

Online toy sales spiked during the pandemic, when kids were schooling at home and parents needed to keep them occupied while on yet another video call. Digital Commerce 360 reports a 58 percent increase in online toy sales in 2020 and is projecting another 19.5 percent year-over-year growth in 2021. That same report, however, found that same-month comparisons began to drop in 2021, starting in March.

Ecommerce retailers like Amazon are doing their part to keep interest high. Amazon recently rolled out 70 Toys We Love, a listing of items that were Amazon exclusives. Its Holiday Toy List includes more than 1,500 items, including those debuting this holiday season.

An Amazon spokesperson promised consumer confidence in low prices and daily savings on this year’s hottest gifts.

As online retailers take a bigger piece of the $25 billion U.S. toy market, what’s the role for physical retail? Moore sees customers looking “for more inspiration and discovery when visiting our stores.”

Aligning with Toys “R” Us allows Macy’s to “significantly expand our footprint in that category, while creating more occasions for customers to shop with us across their lifestyles.”

For her part, Baird sees a resurgence in physical retail, something that has been a long time coming. “Toys got decimated by online. When even the last big box toy retailer can’t survive, that tells you something about how well they were able to compete against the rise of Amazon and even other category competitors from online channels,” she says.

“But it’s interesting that these companies are coming back again to the store format — FAO and Toys “R” Us are sticking their toes back in the physical store water. Retailers need stores to grow, and toys are no exception. And the best way to differentiate against online is to offer experiences. But those experiences can’t look like 2010 definitions of experiential retail — they really need to be updated for this more converged world we live in, where the lines are blurred between online and stores.”