Toys ‘R’ Us Australia has entered voluntary administration months after the collapse of the retail giant’s parent company in the United States.
Although it was initially thought Toys ‘R’ Us stores in Australia would continue to operate as normal, by March this year the parent company’s CEO warned Australian operations were likely to be liquidated.
There was hope the Australian stores could be sold, but voluntary administrators McGrathNicol were appointed after the final bidder in the sale process withdrew.
The retailer operates 44 stores in Australia, including the Babies ‘R’ Us brand, and employs around 700 permanent staff. It is the largest player in the toy and game industry, accounting for 20.4 per cent market share, and analysts from IBISWorld said its collapse will likely be a wake-up call for other retailers.
“While demand for toys and games remains high, consumers have moved online or to discount department stores,” the analysts said. “Toy and game retailers have long been warned that being a simple shop for toys would not be enough to compete, and Toys ‘R’ Us was not able to adapt fast enough to changing market conditions.
“The company’s stores failed to attract busy parents, many of whom purchased toys from stores such as Kmart while shopping for other necessities.”
According to the analysts, the Australian toy and game retailing industry has faced difficult trading conditions over the past five years due to intense local and international competition.
As a result, revenue growth has been relatively weak, at an expected 1.4 per cent over the five years through 2017-18, to $943 million. In order to succeed in the market, retailers will need to review their operations and focus on creating experiences to draw shoppers away from discount department stores.
“Toys ‘R’ Us’ fall is expected to revitalise the way other retailers operate their brick-and-mortar stores,” the analysts said.
“These retailers will likely review their product ranges to reduce cluttered inventory and start focusing on niche markets. Most importantly, many of these incumbent operators are anticipated to shift their emphasis towards creating experience-based destinations for consumers, such as creating instore play areas to generate brand value.”
All Toys ‘R’ Us and Babies ‘R’ Us stores will remain open and continue to trade while the administrators explore options for the sale of the standalone Australian business as a going concern, or a recapitalisation through the administration process.
Refunds for sold items will no longer be offered, but gift cards and vouchers will be honoured provided customers spend an additional equivalent amount in-store.
The administrators said they will continue to pay employees and expect employee entitlements will be met either through a sale of the business, recoveries from the sale of stock, or through the federal government’s employee protection scheme.