Toy stores remain in play in China

A Toys 'R' Us Asia store in Shanghai.
A Toys 'R' Us Asia store in Shanghai.PHOTO: BLOOMBERG

Despite losing traction in the US, they continue to expand in China

HONG KONG • Toys 'R' Us outlets have closed in the United States, but the brand's stores are still a popular destination for Shanghai resident Pan Wei. The 35-year-old manager of an entertainment company does most of his shopping online, but prefers physical shops when buying toys for his daughter.

"When it comes to products for kids, we want to make sure it's safe, so we prefer going to toy stores," he said.

More than a year after the New Jersey-based chain filed for bankruptcy, forcing the closure of hundreds of stores and layoffs of 33,000 workers in the US, Toys 'R' Us Asia is very much alive. Last month, a group of Toys 'R' Us creditors reached a deal with the retailer's Asian partner, Hong Kong-based Fung Retailing, to share control of the company's stores in China, Japan and South-east Asia.

Other international brands are also betting that Chinese consumers are willing to go to physical stores with their children or grandchildren. Favourites such as Lego Group and FAO Schwarz are among those targeting the Chinese toy and game market, which will be the world's largest by 2022, according to Bloomberg Intelligence.

The toy sellers are counting on changes in Chinese politics and society to help them gain a foothold in the world's most populous country.

President Xi Jinping's government ended the one-child policy in 2016 and is taking steps to encourage women to have more children. Also, China's product-safety scandals and notoriety for counterfeit goods have made parents more willing to spend on Western brands, which they perceive as safer.

Toys 'R' Us Asia plans to add as many as 50 new stores next year in China. It is a big vote of confidence in bricks-and-mortar retailing at a time when the growing popularity of e-commerce competitors contributed to the parent's failure in the US.

 

"We are different than the rest of the Toys 'R' Us world," said Mr Andre Javes, president and chief executive officer of the Asian business, in an interview.

Net sales for China and South-east Asia were US$375 million (S$512 million) for the year ended Jan 28, 2017, up about 3 per cent from a year earlier, based on the company's last available regulatory filing. Sales fell 3 per cent in the US over that period.

Many Chinese families in big cities, who often live in relatively small apartments, still look forward to going on trips to shopping malls.

FAO Schwarz, the New York toy store, plans its Chinese debut early next year, with owner ThreeSixty Group opening a Beijing store that will be larger than its Manhattan location.

"Chinese consumers, and especially millennials, are looking for more than just buying an item off the shelf," ThreeSixty chief operating officer Jan-Eric Kloth said in a statement. "They want to be engaged and entertained."

Danish toymaker Lego is taking a similar approach in China with outlets where children can play with the plastic bricks rather than just look at them in the box.

The company has 55 stores in China and plans on adding 80 more next year, according to spokesman George Yang. Lego's revenue rose by high double digits in China last year.

Still, a famous Western name is not a guarantee of fast growth in the Chinese toy market.

A high-profile flop for the industry came in 2011, when Mattel closed a 37,700 sq ft Barbie store in Shanghai, just two years after the six-storey shop opened. The company's international net sales fell 18 per cent in the third quarter, driven largely by weakness in China.

"Mattel's experience in China illustrates the difficulty Western-branded toy companies have still had in attempting to penetrate the world's second-largest toy market," BMO Capital Markets researchers wrote in an Oct 29 report.

BLOOMBERG

A version of this article appeared in the print edition of The Straits Times on December 20, 2018, with the headline 'Toy stores remain in play in China'. Print Edition | Subscribe