(Reuters) – The U.S. toy industry appears poised for a wave of mergers and acquisitions among smaller toymakers following the Toys ‘R’ Us bankruptcy as they seek greater reach and bargaining power with major Target retailers TGT.N and Wal-Mart WMT.N.
Small toy companies that have traditionally relied on Toys ‘R’ Us as a launch platform to sell and promote products say it’s difficult to develop relationships with mass retailers, who now own the most major toy departments in the country.
They say retailers are increasingly picky about allocating display space, preferring well-known billion-dollar brands like Mattel. MAT.O Barbie and Hot Wheels and Hasbro AO Marvel superhero action figures.
“If you’re a young brand, it’s hard to find,” said Shaun Rein, an analyst with China Market Research Group, which covers Asian toy producers.
“A lot of the smaller, niche brands that you would buy because you saw them while browsing Toys ‘R’ Us are going to be hit very hard.” With Toys ‘R’ Us out of the picture, retail power has shifted to Walmart, Target and Amazon, said Jackie Breyer, editor of trade magazine The Toy Book.
Consolidation helps smaller toy companies gain exposure and get their products on the shelves, as they will have a larger portfolio of products for a mass-market retailer to choose from, she added.
The total value of deals in the US toy industry has soared to $962.7 million since Toys ‘R’ Us filed for bankruptcy on September 19 last year, up from $85.4 million the year before. same period a year ago, according to data from Thomson Reuters.
Of the 19 U.S. toy industry deals since bankruptcy, the largest was that of Hasbro Inc. AO $522 million purchase of franchises including Power Rangers and Julius Jr from Saban Properties LLC, the Los Angeles-based company credited with launching the live-action television show “Mighty Morphin Power Rangers” in 1993.
PlayMonster, the maker of the “5 Second Rule” card game, bought Kid O Toys in February, while Canadian toymaker Spin Master Corp TOY.TO bought plush toy maker Gund for about $79 million.
Spin Master declined to comment, while Hasbro said its acquisition was not due to the retailer’s bankruptcy.
More generally, mergers and acquisitions in the consumer products and basic commodities sector registered their strongest one-year openness since 2008, with more than $216 billion spent globally, according to Thomson Reuters data. The total value of transactions increased by 33.6% compared to the same period last year.
‘HUGE GAME CHANGER’ Collectible toy maker, The Loyal Subjects CEO Jonathan Cathey said he’s seen increased interest since bankruptcy and at least two potential buyers have sued his company based in California. CEO Jay Foreman of Florida-based toymaker Basic Fun! said consolidation talks between his company and smaller players have “easily tripled” since September. “Toys ‘R’ Us is a real game-changer,” said Foreman, whose company bought K’Nex and Geoworld since Toys ‘R’ Us went bankrupt. The toy retailer‘s bankruptcy and subsequent liquidation of its more than 700 U.S. stores in March was the biggest meltdown in a year that has seen record stores close and a fundamental shift in sales patterns in the once reliable detail. “More and more companies are now asking themselves where the biggest opportunities to sell toys are,” said Kate Clark, founder and president of Paddington toymaker, Yottoy Productions Inc. “Unfortunately, some toy companies can having a lot of trouble and others not surviving.” According to market research firm NPD Group, toy sales in the United States topped $20 billion last year. Mattel and Hasbro together accounted for 25%, and smaller players accounted for up to 40%.
Toys ‘R’ Us alone accounted for 12% of all toy sales nationwide, according to NPD Group. But toy sales in the United States slowed, and with the demise of Toys ‘R’ Us, toymakers lost an incubator of new and experimental toys that other retailers were unwilling to bet on. “As an entrepreneur starting a toy business, they (Toys ‘R’ Us) were always the ones willing to take risks and buy a wider range of products,” said Wicked Founder Michael Rinzler. Cool Toys which makes Cabbage. Kids Patch and Ruxpin Teddy Bear. Industry watchers say this indicates that power rests firmly with a handful of big players in the industry. “When you’re a small business…do you think maybe it’s a better strategy (to) merge with another business or maybe get bought out so you have more scale?” said Bob Wann, president of the Toy Association in the United States and CEO of toy company PlayMonster. “I think more companies will think about considering this than they may have in the past.”
Reporting by Aishwarya Venugopal and Uday Sampath Kumar in Bengaluru; Editing by Bernard Orr