Letter from America - Rick Derr

America needs a retail toy store reboot!

After 20 years working at A.C. Nielsen/D&B Research Company, Rick opened the first Learning Express Toys franchise in the Chicago area in 1996, and then became a sub-franchiser, opening 10 more stores. Although leaving the corporate environment behind, he has combined his expertise in data and numbers with a passion for the toy retail space. This month, Rick discusses the need for indies to become creative, taking risks and developing a sharp focus to adapt to the needs of its customers.

America needs a retail toy store reboot! I don’t say this lightly or for dramatic purposes. But the data points to a smaller and smaller universe of true toy stores in the US. Consider these facts:

• Online growth is nine points stronger than the flat to down instore toy sales in 2024.

• Amazon, since Covid, has now penetrated 78% of households with Prime membership, up from 47% less than 10 years ago.

• Amazon, Walmart and Target combine to make up over 70% of the US toy market - and this is increasing.

• The advent of AI will favor the online markets more than stores, in my opinion, and that could be a final straw.

Some may find this a very negative outlook. But my concern is, I see no vision or significant changes being made to respond to this tsunami of toy purchasing moving online. I feel it is every store for itself. If you google “toy stores’ future vision”, you will find:

“The future of in-store toy stores is expected to include more interactive experiences, technology and more diverse toy offerings”

Well, this has been said for 20 years now; and toy stores have been putting all of these measures in place, and more. We need change, and in my view, significant changes in order to compete. Some of these changes will require capital, and indies may not be willing or able to fund such changes. It’s important to consider which changes will make the most difference to survival and profitability. And will toy manufacturers be open to new ideas in partnership with brick-and-mortar stores or develop products for that channel effectively?

Before I suggest some ideas we are considering at Learning Express, I want to remind readers that, in the US at least, if you go back to 2019, toy sales were weak. Then came the pandemic, which saw the closure of many smaller toy stores. Those that came though the crises then hit gold with two hot trends – the Squidget craze (fidgets and Squishmallows) which lasted for three years, an unprecedented length of time for a craze. This made stores comfortable again, believing that consumers love shopping local, will support independent stores and are happy to pay higher prices in doing so. Well, that didn’t last, and we are back to the inevitable; convenience trumps everything for US consumers, and online (particularly Amazon) has continued to gain strength. So, Covid and the recent “hot product trends” just delayed the inevitable - unless we become creative, taking risks and developing a sharp focus to adapt to the most important needs of our local customers. Here are a few ideas:

• Social shopping online. Not a new idea, but many indies are not able to do this profitably. Allowing people to buy items without leaving the social media app they are already using is essentially "shopping while social" by interacting with friends and influencers on these platforms to discover and buy products. Streaming and selling online during the week is critical to maintain eyeballs and educate customers, as well making sales during a slow time for foot traffic.

• Customization of products within the store. Examples could include partnering with existing well-known companies or carving out a niche with mid to smaller companies that have uniqueness that kids desire, like a Slime Sundae Station of exclusive flavours and textures.

• Exploit the Achilles heel of Amazon, purchases of $15 and under, which the platform struggles to make any profit on with shipping. We may need to do away with the traditional categories we all grew up with (plush, science, active toys, games, etc.) in favour of value sections, premium goods section, products not found elsewhere, etc. creating a literal treasure hunt of finds.

• All events, product displays and promotions must be geared toward engagement, and not just be experiential. Sampling slime flavours for kids is experiential in a store, but the real goal is to engage with the joy resulting from the activity.

If you combine all the challenges I just discussed with declining birth rates, a generation of kids that grew up with online selling and Amazon; the mobile phone having become their source of news, social, banking, shopping, researching and gaming; and less and less opportunities to buy toys in a true indie toy store, this challenge is immense and urgent. We all need to participate in a strategy that allows for online and instore toy purchases to coexist. The market is big enough for bothand deserves both.