Toys ‘R’ Us, the iconic American toys and juvenile-products retailer, which was founded way back in 1948, filed for bankruptcy on September 19, prompting many to believe that the online revolution was responsible for the company’s fate. Last week, on Friday, Vetri Subramaniam of UTI AMC said that the continued preference for online channel as opposed to retail in the United States has caused a dip in market capitalization for the retail segment which was built over the last 60-70 years.
In conversation with ET Now, the market expert said, “In the US, you saw the peak in terms of maybe formalisation of organised retail, maybe a decade or more ago and then thanks to the rise and continued rise of online and particularly Amazon, in very specifically, you are now seeing a decimation of the market cap that got created in organised retail over maybe six or seven decades.”
However, a recent report on e-commerce sector showed that, contrary to popular belief, only 16 percent of sales in the toys and hobby sector are made online in the United States. “The percentage of toys purchased online is about a third as potent as online sales in the electronics sector,” New York post said citing a Goldman Sachs’ report to private clients.
Ultimately, it’s the burgeoning $7.9 billion billion which the firm found too heavy to handle, say analysts in the United States. According to a company filing, Toys ‘R’ Us has $7.9 billion in debt against $6.6 billion in assets. The company has more than 100,000 creditors, the largest of which are Bank of New York (owed $208 million), Mattel ($136 million) and Hasbro ($59 million). Further, lousy in-store customer service, a second-rate website and prices that are often higher than at many of its big-box competitors led to Toys ‘R’ Us downfall.
Other competitors of Toys ‘R’ Us seem to be doing well, further reinforcing the idea that online revolution may not be the culprit in the case of Toys ‘R’ Us bankruptcy.
Child’s Play, another brick-and-mortar retailer reported a 3% rise in annual sales every year for the past 3-4 years, as parents in the United States prefer the company’s four locations, over megastores and online options.
In India too, retail has a lot of scope, and the online channel is far from being a disruptor, feels Vetri Subramaniam of UTI AMC. “When you look at the Indian context, keep in mind that the total value of the organised retail segment is still a fraction of the total value of retailing which happens in the country and therefore, there is scope. One could arguably make the case that the share of organised retail in this economy will continue to grow and the share of e-commerce will continue to grow as well,” the expert pointed out to ET Now last week.