Toy Stocks Drop as Toys R Us Plans Liquidation

March 14, 2018
1118 Views

Private company Toys R Us doesn’t have any direct Wall Street market listings, but the company definitely has an influence on toy stocks. Once generating over $12 billion in revenue per year, the toy and game retailer that has operated for 70 years is now in the planning stages of liquidation, following their filing for Chapter 11 bankruptcy in September of 2017.

If you’re invested in the stock market, particularly in toy stocks, then the continually evolving story of the decline of Toys R Us will be of importance.

All Stores Likely to Close Across the United States

Although liquidation planning is still underway, it is expected that the final details would result in the closure of all Toys R Us stores across the country. This likely scenario would have a significant impact on the toy industry, of which Toys R Us is responsible for up to 20% of all sales. Manufacturers would lose a key retail partner and would have to focus more on the online sales models, including Amazon.com (NASDAQ: AMZN) as well as big box retailers.

Why does this matter for investors? To put it quite simply, the closure of Toys R Us will have a direct impact on two large publicly traded manufacturers, potentially reducing overall sales and leading to a loss in stock confidence.

With the news that Toys R Us will likely liquidate, there has already been an impact on the toy stocks.

Both Mattel and Hasbro Stocks Feeling the Pressure

Mattel (NASDAQ: MAT) and Hasbro (NASDAQ: HAS) are two businesses that will be nervous at the closure of Toys R Us retail locations.

The two companies generate over $11 billion in yearly revenue combined, with a significant portion coming from physical retail at Toys R Us locations. With the retailer being the key partner to both companies, it is not surprising that both stocks have dropped after news that the toy store would liquidate its assets.

Mattel dropped 3.47% at closing on Tuesday, while Hasbro was down 0.8% at the same time. These drops could quickly recover with new investors taking advantage of lower prices, but the fact remains that both businesses will be significantly compromised by the closing of Toys R Us.

Toy Stocks, Is it Panic Time?

The loss of Toys R Us is not enough to sink companies like Mattel and Hasbro. While they may initially take a financial hit, their distribution networks spread around the world and through new channels like Ecommerce. With continued adaptation they will likely overcome the loss of traditional retail.

If anything, current drops in confidence can mean better prices on Mattel and Hasbro stocks, allowing for investors to cautiously buy stock that they otherwise might not have considered.

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