Retailers of toys resort to markdowns to boost holiday purchases and liquidate stockpiles
The holiday season is upon us, and retailers are gearing up for the final rush of sales. However, the toy market this year is proving to be a mixed bag, with some segments performing strongly while others struggle.
According to recent reports, advertising and promotion spending is expected to continue to be a key strategy for achieving holiday sales acceleration. This comes as no surprise, as retailers strive to entice consumers with attractive deals and discounts.
One of the strong performers this quarter is Magic: The Gathering, with strong sell-through rates. Action figures and toys related to movies and streaming shows also appear to be selling well, providing a glimmer of hope for the industry.
However, the retail toy segment is facing some challenges. Jefferies analysts have reported that sentiment remains terrible, with robust inventories and abundant discounts on toys at various retail store locations during Black Friday and the following week. This could indicate an oversupply of certain products.
The U.S. toys market was up 13% to $28.6 billion in 2021, according to the NPD Group. Yet, investors are bracing for potential headline revisions in the stock market today. Retailers are expected to rely on advertising and promotions to drive sales through the final days before Christmas.
Amazon holds a significant market share in the toys market, with the toys and games category seeing a 324% increase in 2021, according to Gordon Brothers. Macy's, another major player, has moved to open the in-store toy shops in every store ahead of this holiday shopping season. Macy's stores now host Toys R Us shop-in-shops, capitalising on the brand's popularity.
Despite these efforts, the last two weeks of holiday shopping may not be very merry or bright for toy retailers. The weakest performing segments in the category are board games, puzzles, and Nerf products, which appeared to be oversupplied and discounted. On the other hand, Lego consistently had the best looking aisle with the thinnest inventory, with popular sets like Star Wars and Marvel "empty or nearly so."
Target is faring better with toy sales than Walmart this holiday season. This could be due to Walmart's focus on electronics and other categories, leaving toys somewhat neglected. The closure of Toys R Us in 2018 has also led to Walmart, Target, and Macy's capturing some market share.
The analyst at Jefferies evaluating the sales development of toy retailers is named Michael Binetti. However, his pessimistic forecasts have earned him the label of being weak by Uerkwitz. Nonetheless, his insights into the current state of the toy market are valuable in understanding the challenges facing retailers this holiday season.
As the holiday season progresses, it will be interesting to see how retailers navigate these challenges and whether they can achieve the double-digit sales acceleration needed to clear out inventory bloat ahead of next year.
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