Dive Brief:
- Jefferies analysts found generally robust inventories and abundant discounts on toys at big box, discount and hobby retail store locations, according to a Tuesday research note. Andrew Uerkwitz and Matthew Catton surveyed nine states over Black Friday and the past week.
- Retailers will likely rely on advertising and promotions to drive sales through the final days before Christmas, one of the busiest shopping times of the year.
- But retailers will likely need to see a double digit sales acceleration to clear out inventory bloat ahead of next year.
Dive Insight:
The last two weeks of holiday shopping may not be very merry or bright for toy retailers.
In fact, Jefferies analysts said that sentiment for the retail toy segment “remains terrible as investors brace for the potential for more headline revisions.”
The U.S. toy market saw some big changes in the last decade. When Toys R Us filed for Chapter 11 bankruptcy in 2017 and closed all stores in 2018, Walmart, Target and Macy’s all moved to capture some market share from the one-time category killer. In fact, Macy’s stores now host Toys R Us shop-in-shops. Macy's moved to open the in-store toy shops in every store ahead of this holiday shopping season.
Amazon also holds a significant market share. The online retailer saw a 324% increase for its toys and games category in 2021, according to Gordon Brothers.
Uerkwitz said Target is faring better with toy sales than Walmart this holiday season. Uerkwitz predicts that advertising and promotion spending “will continue to be put to work in order to achieve holiday [point of sale] acceleration.”
Familiar brands comprise pockets of strength in the segment. Uerkwitz said Lego consistently had “the best looking aisle with the thinnest inventory” with popular sets like Star Wars and Marvel “empty or nearly so.” Magic: The Gathering is another strong performer with strong sell-through this quarter to date.
Action figures and toys related to movies and streaming shows “appeared to be selling well.” But older action figures appeared to have heavy discounts and sluggish sales, leading Uerkwitz to put these items in the mixed performance category. The analysts also slotted sales performance of Funko’s pop culture collectibles and toys as mixed.
Uerkwitz said the weakest performing segments in the category are board games, puzzles and Nerf products, which appeared to be oversupplied and discounted. A wider assortment of products "could also be a bigger drag on the category as retailers try to exit holiday clean.”
Overall, the U.S. toys segment was up 13% to $28.6 billion in 2021, the NPD Group said.
