Jim Deacove began feeling uneasy about his company’s relationship with Toys “R” Us in the U.S. about five years ago, when they began asking for 90 days to pay their bills.
Deacove, the founder of the board game company Family Pastimes based near Perth, Ont., which makes board games focussed on getting players to work together, was used to being paid before shipping products, or at least within 30 days.
When Toys “R” Us began taking more than 90 days to pay, Deacove raised questions with the company. He said he was met with a demand that he provide financial statements to prove his company was financially healthy.
“I was absolutely stunned,” said Deacove, pointing out that he wasn’t the one asking for 90 days to pay a bill.
“I said, ‘This is the last straw.’ We bailed. I stopped sending any product.”
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At the time, his firm was doing $ 200,000 in gross sales annually with Toys “R” Us, and to replace it, Deacove successfully sought out new markets in Europe.
“That has worked out wonderfully well,” said Deacove, who founded the family-run company 45 years ago.
Family Pastime games now sell in five languages in France, the Netherlands, Poland and Germany.
Deacove has no regrets about making the switch. But he has empathy for the suppliers that didn’t, or couldn’t, and are now lining up to be paid after the retailer announced this week it will have to liquidate the chain in the U.S., closing more than 700 stores and putting an estimated 30,000 people out of work.
“I regret that there are other game companies that were left holding the bag, and for significant amounts,” said Deacove.
While analysts point to Amazon, debt and the rise of electronic games as factors in the fall of North America’s largest toy retailer, suppliers and competitors say the retailer had not been operating efficiently for some time — when it filed for creditor protection in September it had more than 800 stores in the U.S.
“There is no reason to have that many stores, even in the U.S.,” said competitor Austin Da Silveira, founder, Northmen Collectibles, a local company that sells action figures, some of which were also sold by Toys “R” Us.
Toys “R” Us operates 82 stores in Canada, where it continues to be profitable. Canadian stores are not being closed and the hope is that they can be sold and continue to operate.
“The only reason the Canadian branch is healthier than the U.S. is because in Canada they were way more conservative with opening stores,” said Da Silveira.
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And the experience of other toy retailers doesn’t seem to reflect the Toys “R” Us experience in the U.S. In Canada, homegrown Mastermind Toys is flourishing, with plans to open 10 locations in Canada this year, bringing the total number of stores in eight provinces to 70.
In fact, since 2011, Mastermind Toys has opened 53 new stores.
“Mastermind is really a model for how to do it right,” said Christopher Byrne, a 30-year veteran of the toy industry and content director at TTPM (Toys, Tots, Pets & more).
“It’s possible to do it right, to create that store experience that people want to have that makes it a destination that kids and families enjoy.”
He said that while Toys “R” Us came up with many ideas over the years for how to improve the store experience, it was never able to execute the plans because so much of the company’s profit went to servicing the mountain of debt created after a deal to take it private in 2005.
“I think they could have made a lot of operational changes,” Byrne said. “Toys ‘R’ Us was never able to get beyond that supermarket model, which worked well during the Baby Boom and even into the 1970s, but it’s not relevant to the way people shop today.”
Retail consultant Bruce Winder, who was a toy buyer in the late 1990s, said Toys “R” Us had challenges when it came to execution.
“They were always an okay retailer, they were never best in class. Everyone knew that it was a bit of a challenge just getting things done, and they were in a very tough industry,” said Winder.
Then Walmart started taking a run at toys.
“I was a toy buyer in 1997, even then they were getting kicked by Walmart. After being kicked for 20 years, eventually you succumb to your injuries.”
Toymaker Hasbro said in a statement that the bankruptcy will have an impact, but it expects to recover.
“We expect the pending liquidation and closure of Toys “R” Us stores to be disruptive to our business in the near term, most notably during 2018, but over the longer-term we believe the market and Hasbro will continue to grow. Hasbro brands are performing and we are well-positioned with a global omnichannel retail model that ensures our products can be found everywhere consumers shop,” according to an emailed statement from Hasbro, Inc.