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Child's Play: Toys R Us Tries Again

London Retail

Mixing digital and physical retail is like the kids’ game: Can you fit the red triangle into the green square?

Toys R Us, the children's entertainment fascia that shuttered its 3M SF UK store portfolio in 2018, got its triangles and squares in a muddle in 2018. Now it is trying again, and it plans a return to bricks-and-mortar retail.

The about-turn is part of a new digital-first strategy launched by new UK brand licensee Toys R Us ANZ, in an effort to grab a share of the UK’s £3.3B toy market.

Last week Toys R Us ANZ acquired a licence from WHP Global to run “digital and physical retail commerce” including at some point bricks-and-mortar shops, Retail Gazette reported.

The stores will support the website and offer an immersive and unique “physical experiential offering,” Retail Gazette said. Web sales to UK shoppers are to start over the next several months.

The gamble is that a model that has worked in the U.S. and Australia will also work in the UK, because all three economies have high e-commerce penetration. The new licensee revived the Australian Toys R Us operation in 2019.

Australian interventions in UK big-box retail have not always been happy ones. In 2016 Australian buyer Wesfarmers acquired DIY chain Homebase only to sell it two years later for just £1. The UK toy market, whilst large, is competitive with both Smyths and The Entertainer well entrenched.

Toys R Us' 100-store portfolio closed in 2018, around 1 in 4 as the result of a company voluntary arrangement. The rest then closed when the UK operation fell into administration.

The most conspicuous legacy of Toys R Us’ UK adventure was a three-year-long legal dispute over roughly a quarter of the portfolio.

The dispute revolved around a £263M CMBS loan dating from 2013 secured against 24 stores and a distribution centre. The portfolio was once valued at £360M but by 2018 was reported to be worth £230M.

In 2019, Tim Knowles' Lancashire-based property company Acepark took on £363M of debt and other liabilities relating to a portfolio of big-box retail properties once occupied by Toys R Us. The company bet that it could sell the assets for more than the debt it had taken on. Accounts published earlier this year show that the bet is unlikely to pay off, with Covid-19 making the already-marked-down assets even tougher to sell. The lenders on the portfolio include giant U.S. fund manager PIMCO.