INDUSTRY INSIGHT
RETAIL INVENTORY
UPDATED JANUARY 2017
TOY RETAILERS
CURRENT TRENDS
The NPD Group’s Retail Tracking Service, which represents
approximately 80 percent of the U.S. toy retail market, reported
a 5 percent increase in domestic toy sales in 2016
The rise in ecommerce poses a significant threat to the
industry, especially from Amazon. In turn, numerous toy
retailers are stepping up their online presences to compete
Overall, U.S. personal consumption expenditures on toys, dolls,
and games are forecasted to grow at an annual compounded
rate of 4 percent between 2016 and 2020
A PPROXIMATE NET RECOVERY ON COST
80-90%
high selling period
PROJECTED VALUES
(12-MONTH OUTLOOK)
DECREASING
STABLE
FASTEST GROWING/DECLINING CATEGORIES IN
2016
Arts & Crafts
-5%
Dolls
10%
Building Sets
-3%
Outdoor & Sports Toys
10%
Action Figures & Accessories
65-75%
low selling period
INCREASING
-1%
Games & Puzzles
18%
-10%
0%
10%
20%
Source: The NPD Group
-2.5%
decline in domestic same store sales at
Toys ‘R’ Us for the nine-week period ended
December 31, 2016
NOTE: THIS PUBLICATION IS PROVIDED FOR INFORMATIONAL MARKETING PURPOSES ONLY. THE
MATERIAL CONTAINED HEREIN SHOULD NOT BE REGARDED AS ADVICE, NOR RELIED UPON TO MAKE
FINANCIAL, OPERATIONAL OR OTHER DECISIONS; NOR SHOULD IT BE USED AS A SUBSTITUTE FOR AN
ASSET APPRAISAL. ACTUAL RECOVERY VALUES MAY VARY FROM TRANSACTION TO TRANSACTION AND
THE RECOVERY VALUES REFERENCED HEREIN ARE FOR REPRESENTATIVE TRANSACTIONS WITHOUT
REGARD TO SPECIFIC KEY FACTORS. THIS MATERIAL MAY BE REDISTRIBUTED ONLY IN ITS ENTIRETY,
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While select retailers lagged
behind, overall 2016 holiday sales looked consistent with industry
projections. As reported by Chain Store Age, First Data’s retail
spending figures increased 3.6 percent during the holiday period,
which was in line with the National Retail Federation’s forecast. The
biggest winner was ecommerce, which saw 2016 sales increase 12
percent along with a 21.3 percent share of all holiday spending.
MIXED RESULTS FOR HOLIDAY 2016:
For toy retailers, results were mixed. At Target, the toy department
outperformed expectations during the holidays, growing 3 percent
more than the company average. However, Toys ‘R’ Us, Inc. reported a
same store sales decrease of 2.5 percent domestically and 4.9 percent
internationally, for a consolidated 3.4 percent decrease for the nineweek period ended December 31, 2016. The decline was driven in part
by lower than expected sales in the toy category overall and continued
softness in its baby business.
Several major toy retailers were plagued by both fulfillment and
performance issues from the season’s hottest toy, Hatchimals, a
furry toy creature that “hatches” from a toy egg in about 30 minutes
when kids knock, tap, or rub on the shell. Spin Master, the company
that makes Hatchimals, received an overwhelming number of
complaints, many via social media, about the $50 toy failing to “hatch”
as promised. Fulfillment issues also caused the price of the toy to
skyrocket to up to $250 in alternative markets like eBay.
with lower recovering categories including plush and seasonal toys.
Miscalculations in purchasing, supply chain shortages in popular
items, or vendor fulfillment issues can quickly derail a retailer’s
holiday season sales momentum, resulting in stock-to-sales ratio
imbalances by category that can impact sales capacity for months.
In turn, normal course overstock and sales capacity issues may
severely impact appraisal sell-throughs by category, and overall sales
capacity, ultimately taking a toll on already highly seasonal Net Orderly
Liquidation Values.
Retailers stocking deep assortments of toys must carefully manage
inventory levels to sales volumes to maximize value, especially
given the brevity of the “traditional” holiday season and its potential
impact on annual sales. To the extent that seasonal or slower moving
inventory is not managed effectively as part of the normal course of
business, it may become challenging to sell-through in an off-season
liquidation event, resulting in lower gross recovery values in certain
categories. Gordon Brothers recommends that lenders partner with
appraisers in requesting annual seasonal models to address large
swings in net recovery values and their potential impact on availability.
Spin Master wasn’t the only company inundated with complaints
during the holiday season. Mattel’s Barbie Hello Dreamhouse, an
app- and voice-controlled version of the classic Barbie Dreamhouse,
also faced backlash from consumers as many parents reported
receiving “error code” messages when trying to use the toy. For brick
and mortar toy retailers counting on successful holiday sell-throughs
with limited returns, issues with a major product or brand have the
potential to negatively impact sales for an entire season.
DESPITE LOSING GROUND, SEASONALITY REMAINS A KEY DRIVER OF
Recent trends have shown that the traditional holiday shopping
season is losing ground as a percentage of total annual sales. U.S.
News recently reported that November and December now account
for less than 21 percent of annual retail sales at physical stores,
down from a peak of over 25 percent, and experts believe it may drop
further. The Retail Economist notes that the traditional holiday season
steadily gained in importance and peaked in the early ‘80s, before
the dominance of big discounters like Walmart stalled its growth as
shoppers began moving away from department stores. Nevertheless,
the two-month period remained strong through the mid-‘90s when
online shopping began to gain market share. In general, many
consumers are now shopping for the holidays year-round. Heavy
discounting has diluted traditional period sales. With significant
promotions offered throughout the year, shoppers no longer wait until
November or December to purchase.
VALUE:
Despite these changes in consumer buying trends, seasonality
remains an important consideration for appraisals. With a significant
percentage of total annual revenue still generated in the months of
November and December, clients lending on toy inventory should
understand the impact of seasonal values on their collateral.
Seasonality coupled with the obsolescence risk related to often fickle
consumer purchasing trends in individual categories are primary
drivers of gross recovery values for toys. Inventory mix drives changes
in gross recovery as higher recovering categories, such as licensed
action figures, games, and bicycles, must be managed in conjunction
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