Toy wars: Target, Party City prepare to battle for shoppers now that Toys R Us is gone

Shoppers may be wistful for Toys R Us this holiday season, the first in decades without the kiddie wonderland. But they'll have no trouble finding plenty of gifts elsewhere to tuck under the tree. 

Retailers are jockeying for a bigger piece of the $27 billion toy industry, wooing customers with in-store events, carving out more space for gizmos and games and battling for exclusives that shoppers won’t be able to get anywhere else.

"Even though we’re losing a major player, we're not expecting the year to be hurting by any means,'' says Marissa DiBartolo, editor in chief of The Toy Insider, a toy review website. "If anything, consumers are going to have so many more options and so many more places to go to buy the toy that they're looking for that it could have a positive effect on the overall industry.’’

Toys R Us, which shuttered its last stores in June, generated roughly 12 percent of toy sales in the U.S. last year according to market tracking firm The NPD Group. And the big store chains that put a dent in Toys R Us' fortunes by wooing away shoppers are not overlooking those customers now that the toy giant is out of the way.

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Target says that by the start of November, more than 500 stores will feature extra space to display items such as toddler-sized Mustangs and tractors, or exclusives such as the Melissa & Doug Deluxe One Stop Shop Play Store. The retailer will feature more in-store activities this holiday season, such as a chance to meet characters from "Minecraft" and other games. And Target's website has a new hub dedicated to toys. 

Walmart, which had surpassed Toys R Us to become the largest toy seller in the U.S., has ramped up its toy focus as well, unveiling larger toy aisles in some stores, selling 40 percent more toys online and offering more than 300 products that can only be bought at Walmart.

So lucrative is the potential opportunity to grab more toy shoppers this year that new players are entering or doubling down in the space.

"I will tell you that all channels are looking at playing with us this holiday season,'' says Steve Totzke, Mattel’s global chief commercial officer, who noted that those outlets include grocery and drug stores along with online sellers. "It’s very rare when you have a retailer of Toys R Us' size, in a $20 billion-plus industry ... go away, so this (holiday season) is going to be an interesting time for everybody.’’

Mattel, home of Barbie, began cultivating less traditional toy sellers roughly a decade ago, Totzke says, adding that grocery chain Kroger has been one of the biggest sellers of Mattel's Hot Wheels toy car line in the U.S. But this year, Totzke has noticed that "some other toy companies are starting to come into these channels.''

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Party City, a supplier of party accessories and decor, began opening up 55 Toy City locations in September, most of them next to Party City's seasonal Halloween City shops. The temporary toy storefronts will stay open through the holidays. The company is also trying out selling a broader array of toys online.

"Party City’s new Toy City concept is a logical extension of our brand, one that allows us to leverage our existing pop-up store capabilities and capitalize on the ... space created with the closing of Toys ‘R’ Us,'' says Ryan Vero, Party City’s president of retail.

And membership warehouse giant Sam's Club is offering more toys this year along with extra space in which to feature them.

Sam's Club along with retailers such as Walmart and Target are touting how they are the go-to for toys shoppers won't be able to get elsewhere. 

"A lot of manufacturers  are creating products that are exclusive to each retailer,'' DiBartolo says, noting, for instance, the ever-popular "Hatchimal."

Among this year's new "HatchiBabies," "there are ... specific breeds that you can only get at Amazon. There's one you can only get at Walmart, and there's one you can only get at Target. So companies are finding really creative ways to bring people into specific stores, and we're seeing more of that than ever before.''

Totzke says the desire for exclusives has been strong for at least the last decade, though there may have been a slight uptick in demand from toy sellers this year.

"Maybe it's a little bit more this year but ... the past few years, it seems to have been the trend,'' he says, adding that Toys R Us had a significant exclusives program that other retailers are likely vying to emulate.

More broadly, Mattel has been zeroing in on stores within 5 miles or less of a shuttered Toys R Us, and after checking "what categories were performing well in those locations'' Totzke says, "we work closely with all of our retailers to understand what inventory ... would fit best in those stores.''

While the overall toy industry has experienced growth, major toy makers such as Mattel and rival Hasbro have struggled in recent years to adjust to a landscape in which old school dolls and action figures compete for attention against digital games and gadgets. Toys R Us' exit is also taking a toll.

Hasbro reported last week that net revenues dropped 12 percent in the third quarter to $1.57 billion, partly due to Toys R Us going out of business. And while Mattel had a $63 million profit during the same period, it expects gross sales to be down during the holiday season because of Toys R Us’ absence.

Still, Mattel's Chairman and CEO Ynon Kreiz told investors Thursday that the impact of Toys R Us' loss will likely wane next year. And the industry as a whole should be fine.

“The fact that one retailer is out of business doesn’t mean consumers will change what they do, what they consume and the toys they like,’’ Kreiz said, noting how other retailers are stepping in to fill the void. "We expect growth to continue in the industry.’’

Hasbro’s Chairman and CEO Brian Goldner said in a statement regarding the company's third-quarter performance that "the lost Toys R Us revenues are impacting many markets around the world.''

However, he added,  "a growing array of retailers are now ramping new programs to take share this holiday season and we are well positioned to meet their demand.''

Among the retailers who are aggressively pushing back onto the scene is iconic toy emporium FAO Schwarz, which is opening a new flagship store in Manhattan next month.

It will be the retailer's first freestanding location since it shut its doors in 2015. For the second year in a row, FAO will also have pop-up shops in such stores as Bloomingdale's, Neiman Marcus and Macy's this holiday season.

The return of FAO Schwarz, known for its over-the-top toys and starring role in the 1988 Tom Hanks film "Big,'' may be emotionally heartening for shoppers nostalgic for Toys R Us.

"Everyone wanted to make sure they ... bought one last toy at Toys R Us,'' DiBartolo says. With FAO now back in business, "I think people would be excited to have a dedicated toy store again.''

More:Toys R Us may be out, but FAO Schwarz is back in – making a comeback in time for holidays

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Even the ghost of Toys R Us lingers. The defunct retailer’s lenders, who’ve retained the rights to giraffe mascot Geoffrey among other assets, have reportedly said they'd like to have “Geoffrey’s Toy Box’’ pop-up shops within a regional retailer’s stores by the holidays, according to The Toy Insider.

"It's sort of like the toy story that never ends,'' DiBartolo says. "But as many options as you can offer the consumer, that’s always a good thing.’’