Toys R Us Returns to Brick and Mortar Universe

The once bankrupt retailer Toys ’R’ Us is expanding by “land, air, and sea” as it looks to rebound next year with stores in airports, cruise ships, and in department stores.

It has increased its global retail footprint by more than 50% with openings in the United States, United Kingdom, India, Dubai, and Mexico, and now has more than 1,400 stores and e-commerce sites across 31 countries.

Toys ‘R’ Us is partnering with Go! Retail Group in its expansion efforts.

Next month, it will open in November at Dallas Fort Worth International Airport through a partnership with Duty Free Americas just in time for the holiday shopping season.

As for cruise lines, Toys ‘R’ Us said it will offer a wide range of toys and exclusive cruise-themed merchandise for children and families during their voyages.

Toys ‘R’ Us was founded in 1948 and was the first big box toy store in the market, but after a difficult holiday season, it declared bankruptcy in 2017 and ultimately wound down through a liquidation.”

Since 2021, it has opened a 20,000 sq ft. flagship at American Dream in 2021, followed by the launch of 452 Toys ‘R’ Us shops at Macy’s stores nationwide in 2022.

Terrison Quinn, managing principal, SRS Real Estate Partners, tells GlobeSt.com that retail brands have a unique opportunity to be resurrected from the dead because there is a major difference between a retail brand and business model problems.

“Many companies take on too much debt, overexpand or underinvest and a bad business model can drag down what is otherwise a strong brand,” according to Quinn. “It’s not uncommon for investment groups to capitalize on the brand value of a bankrupt company and match that with a new, better business model.

“People can have positive nostalgia about brands they knew as children even though the company failed. Many companies have been successful by purchasing the rights to iconic brands and re-investing a business model that is more current and/or more efficient.”

Joseph Iacono, Chief Executive Officer, Crescit Capital Strategies, tells GlobeSt.com that retailers’ bricks-and-mortar strategies must be creative and targeted. 

“For retailers that are disintermediated by e-commerce, the old days of blanketing markets with stores will not be effective,” he said.

Joseph Rubin, Senior Advisor at EisnerAmper, tells GlobeSt.com that while inflation is cutting into consumer budgets, experiential retail should outperform in a slowing economy.

“In-store retail wins when it becomes a destination,” Rubin said. “Surviving malls need storefronts that are activity-oriented and appeal to a cross-section of shoppers. 

“Toy stores are a natural place for families to spend time together, but the last 20 years have demonstrated how difficult that strategy can be when toys are available online. As long as the labor market remains resilient against current economic dynamics, we expect consumers to regain their confidence and spend more time in neighborhood centers and the highest quality malls.”

Naveen Jaggi, President of Retail Advisory Services, JLL, tells GlobeSt.com that it’s important to separate financial distress from brand value when evaluating retailers and a return from bankruptcy. 

“In the case of Toys R Us, there was certainly equity still in the brand, which makes it attractive,” Jaggi said. “Furthermore, there was still a void in the market that was not filled post its bankruptcy. 

“With physical retail performing well post COVID lockdowns (retail sales were up 2.5% year-over-year in August), there is still a viable demand for physical toy stores, as they are an underrepresented category currently in malls and lifestyle centers. 

“Toy stores are a value add to the tenant mix as they attract families to a center, which leads to incremental sales at other stores as well – turning quick shopping trips into outings.

Jaggi said other brands have emerged from bankruptcy in various capacities. 

“The iconic legacy brand of Toys R Us coupled with a void in the category make this reemergence possible,” he said. “It doesn’t mean that every retailer that goes bankrupt will have a second life, but when there is viable equity left in a brand we’ve seen it work in the past, and it will continue to work in the future.”

Patrick Collins, Partner, Farrell Fritz, P.C., tells GlobeSt.com, “Through the bankruptcy case of the Toys R’ Us companies, the bundle of intellectual property rights comprising the Toys R’ Us brand was sold to a purchaser that acquired the brand free and clear of the debt that had saddled the Toys R’ Us companies. “The transaction left the new owner of the brand free to deploy its capital into the brand as it sees fit and pick the times and places for the reintroduction of the brand to the public,” Collins said. 

“Whether the investments being made by the new owner into brick-and-mortar venues pan out remains to be seen, but whether the new investment succeeds or fails will not be on account of any legacy debt from the Toys R’ Us bankruptcy.”

Daniel Gielchinsky, Partner and Co-Founder, DGIM Law, tells GlobeSt.com that bankruptcy does not always translate to a complete exit of a brand that was predominantly brick-and-mortar from the marketplace. 

“The American shopper often seeks out nostalgia,” Gielchinsky said. “When a brand has a certain amount of recognition or cachet, a new owner that purchases the intellectual property rights to the brand will often bring the brand back to some form of its former glory.

“The key to having a successful return to the marketplace in brick-and-mortar form is reimagining the retail experience. Brands that will succeed in the retail segment have to differentiate themselves from other retailers by offering a customer experience that makes the store a destination. 

“For example, the Toys “R” Us flagship store at the American Dream mall is an immersive experience, which includes unique product offerings, interactive displays, a two-story slide, a café, and an ice cream shop.

“In other words, the brick-and-mortar location has to be more than just a place to purchase a commodity, because that sort of purchase can be more easily accomplished via an e-commerce platform. The physical location has to offer its own unique reasons for visiting the location.”

Darren P. Wood, owner, The Providence Group, tells GlobeSt.com, “It is great to see this brand and category represented again in the marketplace. The toy business has moved to online and absorbed into the likes of Target and Walmart but having a dedicated store will be a better experience for the consumer. Opportunities will be more readily available in mall and high street locations versus class A suburban power retail which has a shortage of available good quality boxes.”

“Toy stores are a natural place for families to spend time together, but the last 20 years has demonstrated how difficult that strategy can be when toys are available online. As long as the labor market remains resilient against current economic dynamics, we expect consumers to regain their confidence and spend more time in neighborhood centers and the highest quality malls.”