I have to say, I’m really sad about the bankruptcy of Toys R Us. Who in America didn’t grow up buying toys at the venerable chain? Not only that, who in America didn’t subsequently take their owns kids to the venerable chain even if it was just make a shopping list for the holidays?
But with Toys R Us now out of the picture, all that demand that did exist for those products has to go somewhere. Where is that demand going to go? What stocks are likely to benefit?
Toys R Us Winners
The obvious first off is Amazon.com Inc. (NASDAQ: AMZN). I’m actually not so certain that a MCN stock will see much of a revenue boost off the demise of the store. I actually think it was Amazon that probably contributed in a major way to its decline.
By the way, I don’t buy into the theory that the move by millennials and younger people to electronic entertainment was a major cause in the company’s decline. Toys R Us carried most of the same products that everyone else did. It’s just that whatever you could buy in terms electronic gear at Toys R Us you could buy on Amazon.
A number of pundits believe that Walmart Inc. (NYSE: WMT) is going to be a beneficiary. I think that may be true up to a point. Remember, Walmart is about the discount shopping experience. Walmart leverages its massive store base and economy of scale in order to offer prices on products at lower price points.
I think Walmart may be more likely to capture lower income shopping dollars, for toys set at lower price points.
I think Target Inc. (NYSE: TGT) is likely to see some of Toys R Us’s business. Target does not carry a whole lot of toys. They have the basics, and some of the bestsellers, but their stores are not stuck to the brim with toys. That may change. What target will not do is carry items that take up enormous amounts of shelf space they just don’t have that space.
Then again, larger items also are more expensive so I don’t think that Walmart is going to pick up that business either. I suspect target will perhaps look at the higher margin mid-level priced toys and perhaps aim for those.
Other Companies That Win
Toys R Us controlled about 14% of the countries market share for toys. I think most of that will be spread amongst those other three retailers. However I do think the remaining share will be split and heavily fragmented amongst some of the country’s largest retailers.
I would not rule out, for example, CVS Health Corporation (NYSE: CVS). They do sell toys. The selection is not gigantic, but they do stock items, and the company has a 10,000 store footprint all across the country.
The same goes for Walgreens Boots Alliance (NYSE: WAB). Walgreens does $72 billion worth of revenue every year, and has more than 8000 stores in the United States. Together, they may account for some of the lost sales.
Mind you, in the grand scheme of things, Toys R Us only accounted for $4.67 billion worth of revenue. It certainly not chump change but it’s going to be a rounding error as far as whatever market share Amazon picks up, and not much more than that for Walmart, Target, or other chains.
Lawrence Meyers is the CEO of PDL Capital, a specialty lender focusing on consumer finance and is the Manager of The Liberty Portfolio at www.thelibertyportfolio.com. He does not own any stock mentioned. He has 23 years’ experience in the stock market, and has written more than 2,000 articles on investing. Lawrence Meyers can be reached at [email protected].