It may only be September, but for Toys R Us, it is never too early to start thinking about holiday shopping. The nationally-known toy chain plans to open 600 “express” stores, which will be open on a temporary basis.
These “pop-up” stores have become popular among retailers over the past few years due to the low risk involved in their operation. Retailers often rent storefronts in malls and shopping centers for several months, in order to play on the holiday season shopping spree. After all, the recession has driven out many stores so there’s plenty of vacant spaces landlords are not collecting rent on. And the pop-up companies save money too by not operating during down seasons and cashing in on seasonal shopping. They also don’t have to expense the construction of permanent outlets.
But the holiday push is likely part of a larger plan in which Toys R Us will return to the public markets, after becoming a private company in 2005. The retailer hopes to raise $800 million in an IPO, which would be the largest initial stock offering so far this year in the U.S. – aside from any GM IPO, of course, depending on timing. Having filed a statement with the Securities and Exchange Commission, the number of shares and the price range have not been set, although the company would trade under the ticker “TOYS.”
Part of the proceeds from the IPO would be used to pay part of the company’s $5.2 billion debt. Toys R Us reports annual sales of $13.5 billion.
It appears that Toys R Us has been building towards this IPO for some time. In 2009, the toy giant acquired FAO Schwarz, as well as internet retailers eToys.com, babyuniverse.com and toys.com.
If the toy retailer’s express locations show a surge in revenue and the IPO is a success, Toys R Us might compete with department retailers such as Wal-Mart (NYSE: WMT) and Target (NYSE: TGT).
The 600 express locations (up from just 100 last holiday season) may end up driving traffic towards shopping malls and away from one-stop-shops. The smaller storefronts also lend diversity to the company, which operates 587 large stores and 261 Babies R Us outlets.
However, with consumer spending down at the moment, frugal shoppers may still flock to stores like Wal-Mart for all their shopping needs or continue buying their products online at Amazon.com (NASDAQ: AMZN) where they can easily comparison shop online. It may be tough for Toys R Us to compete with these retail giants in the long term. Target and Amazon stocks are up +9.2% and +4% year-to-date respectively, while Wal-Mart’s stock is only down slightly since January with a -2.8% change.
Toys R Us is sure to see a rise in sales during the holiday season, and will most likely improve from 2009’s holiday season performance with an increase in stores. However, it will be difficult for the toy seller to maintain high performance especially when the lease runs up on half of its locations.
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