In its 2016 forth quarter report US-based major toy retailer, Toys R Us (TRU) has announced mixed findings which show a decline in domestic US sales by US$262 million year-on-year.
The retailer has attributed the decline in US sales primarily to domestic store closures; TRU opened 29 domestic stores – including 27 outlet and express stores – and closed 16 stores, including the high profile Times Square and FAO Schwarz flagship outlets.
Compared to the previous year, TRU consolidated same store sales showed a decrease of 1.4 per cent. Internationally, the retailer opened 73 stores and closed 17.
Despite an improvement of 2.5 per cent in the toy category, sales in the retailer's entertainment sector (which includes electronics, video game hardware and software) and baby categories declined by 1.3 per cent.
The decrease in TRU's International business of 1.6 per cent, driven by declines in the Europe and Asia Pacific markets, was partially offset by growth in Canada. The international decline was attributable to the entertainment, seasonal and core toy categories, partially offset by an improvement in the baby category. Consolidated same store sales decreased by 1.4 per cent.
The company's operating earnings were $480m, compared to $447 million in the previous year, while the International sector's operating earnings improved by $26 million, mostly driven by a reduction in operating expenses.
Corporate overhead was $46 million lower, primarily due to a reduction in annual bonus expenses. The improvement in operating earnings was partially offset by a decline in domestic operating earnings of $39 million, due to decreased gross margin dollars.
“Despite a strong start to the holidays, in the weeks following Black Friday we faced a combination of sluggish sales and intense promotional activity,” Dave Brandon, chairman and chief executive officer said.
“The widely recognised tough retail environment this holiday and continued weakness in the entertainment and baby categories contributed to the erosion of our top-line and an overall disappointing year. However, with 2017 already well under way, we remain focused on improving in every area of our business.
“We have a number of important initiatives planned this year, including the launch of our new webstore and the expansion of our joint venture with Fung Retailing in Asia, and some exciting plans with several of our vendor partners to bring innovation and excitement to our customers.”
The global toy retailer has announced it will consolidate its businesses in Japan, Greater China and Southeast Asia as part of a joint venture with Hong Kong-based Fung Retailing Ltd under the banner Toys “R” Us Asia.
Fung Retailing – which operates 160 stores in the country – and TRU have been working together in the region since 1985. The combined business will now be roughly 85 per cent owned by Toys”R”Us, with the remaining percentage held by Fung.
The new entity, Toys R Us Asia and its subsidiaries will operate 223 stores in Greater China and the Southeast Asia markets including Brunei, China, Hong Kong, Malaysia, Singapore, Taiwan and Thailand.
There are also a further 34 retail locations in the Philippines and Macau that are operated under licence from Toys “R” Us Asia.
The combined company’s headquarters will be located in Hong Kong, while a regional office will continue to operate in Kawasaki, Japan.
Andre Javes, president of TRU Asia Pacific, will continue to oversee all operations of the combined businesses, as well as Toys R Us Australia.
According to the toy retailer, the consolidation will allow the company to streamline operations and accelerate innovation. A strengthened focus on Asia-Pacific operations in particular makes sense for Toys “R” Us, as the region has been a source of growth for the company.
International same store sales grew 1.2 per cent in Q2 2016, driven by strength in the Asia-Pacific market. However, international sales declined by 2.5 per cent in Q3, thanks to softness in Asia Pacific and European markets. The company’s international same store sales during the 2016 holiday season decreased 4.9 per cent, also driven by the European and Asia Pacific markets.