published on October 12, 2018 - 7:00 AM
Written by Edward Smith

When a group of lenders to Toys-R-Us said in a bankruptcy filing Oct. 2 they would not go through with aN auction for their assets, consumers held out hope for a revival of the brand. A branding expert named Deb Gabor was one of them.

“The lenders that were working on this bankruptcy probably decided that the whole is still greater than the sum of the parts,” said Gabor, CEO of brand strategy firm Sol Marketing in Austin, Texas.

What the investment group decided to hold onto was not only intellectual property, like consumer data, but more importantly, the Toys-R-Us and Babies-R-Us brands as well as Geoffrey the giraffe mascot that for decades has become synonymous with toys for children and hobbyists alike.

Gabor sees potential in the future of the Toys-R-Us brand, not only for the company itself, but also for the future of retail. Much like what could be coming out of Sears at Manchester Center in Fresno, what she suggests is executives consider a store-within-a-store model that might be a win-win-win for companies that work together to diversify their inventory and rely on one another’s brands to bring foot traffic back in the age of Amazon.

“I like the idea of making sure the Toys-R-Us brand doesn’t die,” Gabor said. “Mainly because when Toys-R-Us closed its retail locations back in June, they decided to leave about an $11 billion hole in the toy industry.”

After Toys-R-Us announced its closure, toy manufacturers knew they would have to cut back as well. Mattel said it would cut back 2,200 jobs in part because of the loss of the retailer, according to the Associated Press. In total, approximately 32,000 jobs were lost in July in the toy and game category.

“Nobody’s really sure exactly what they’re going to do, but if you look at the announcement, what’s interesting is that it very clearly states that they want to reinvent themselves as a branding company and they’re looking for ways to expand the brand globally,” said Gabor.

One of the ideas was to bring the toy company into a shared space with another complementary retailer, especially one who might not have the know-how of the toy game. Two brands could build a relationship by attracting more diverse shoppers. According to Gabor, data show consumers still prefer to shop in-store for toys, books and hobby goods. For a partner who would make the plunge, that could potentially mean bringing in foot traffic past the aisles of a host company before getting to the toy store.

‘They get access to those consumers,” Gabor said. “They get the opportunity to up-sell those consumers on other goods, but they get the benefit of Toys-R-Us’ reputation – credibility, experience, data and what they do really well.”

Kohl’s announced earlier this year that they would bring grocer Aldi’s into ten pilot stores this year, according to a March article in CNBC. Kohl’s would not comment on the progress of the program. But it could be a way for a department store to get into the food game. When Target tried to get into groceries to compete with Wal-Mart, it was a huge distraction to the company, according to Farla Efros, president at Illinois-based HRC Retail, an advising company. Buying cookies for a shampoo shopper may not be that big of a difference, but buying fresh strawberries comes with its own complexities like refrigeration and shipping.

For a business that might take the plunge and sign Toys-R-Us, “they get the benefit of an almost plug-and-pay toy department,” Gabor said.

The Business Journal also reported in August that the Sears in Manchester Center in Fresno had signed a lease agreement for another retailer to take over almost half of its footprint as a form of rent relief.

In a 2017 article in Reuters, both Macy’s and Kohl’s were exploring ideas of subleasing space to other retailers. Too much real estate has been a problem for retailers, according to Efros. There was a time when shoppers were happy perusing aisles, and retailers were glad to build big box stores to satisfy that curiosity. But now, Efros says, research is being done on phones about what people want to buy. “Because of that, it’s less of an event than it used to be,” said Efros. This in part has lead retailers to believe they are stuck with this excess space.

The same article in Reuters went on to say that sales-per-square-foot for retailers had gone down from $350 to $330 since the early 2000s.

“The reality is retailers are looking at anything they can do just to generate some excess cash,” Efros said. Right now, retailers are staying away from big stores, she said. They want small. But shoppers’ desires ebb-and-flow. In five years, the super center may come back, but the subleasing of space could be a short-term fix.

In order for it to work, a lot of math has to be figured out, Efros said.

What set Toys-R-Us apart was its tens-of-thousands of square feet dedicated to toys. Sharing a building would mean drastically reducing that shelf space that made it special. Because of its vast real estate, it could take chances on obscure toys and vendors that Target or Wal-Mart would otherwise not.

The other problem is logistics. Coordinating between two companies’ warehouse and receiving could mean businesses that should be getting along have to compete with one another for delivery schedules. Efros thinks pop-ups and a strong online presence would be ideal for the retailer.

With continued closures of Kmart, Sears and other big-box stores, as well as the permanent closing of Orchard Supply Hardware, open retail space is bound to increase and the store-within-a-store model could be what it takes to help keep stores afloat.

“It’s an opportunity for retailers to get into categories where maybe they’re inexperienced or they don’t want to take the risk,” said Gabor. “Depending on what their business models look like, it may be a way for them to maximize those real estate investments and defer some of the risk.”

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