Toys “R” Us is the latest to join a growing list of retailers bemoaning the promotional environment over the holidays. Chairman/CEO Dave Brandon said the company was forced into markdowns as rivals tagged discounts onto toys.
There was more competition, too. With toy sales surging last year, Macy’s added the category to its off-price Backstage pop-ups in full-line stores over the holidays, Hudson’s Bay also added toys to its holiday merchandise, and Kohl’s brought in the popular American Girl doll line for the season.
“The 2016 holiday season proved to be an unusual and challenging one for most retailers,” Brandon said in a statement. “Despite a promising start over the Thanksgiving and Black Friday weekend, we experienced lower than expected sales in the toy category overall and continued softness in our baby business. The loss of momentum in the toy category triggered intense promotional activity from our competitors, creating a significant competitive challenge. Despite the fact that our operational execution was significantly improved versus last year, the marketplace environment precluded us from achieving the top-line growth we had planned for both our domestic and international markets.”
The company’s complaint fits with the analyst assessment from Moody’s Investors Service, which is waiting to see the extent of discounts’ destruction of margins.
“Toys’ acknowledgement that the toy sector was highly-promotional over the core Holiday season fits into our assessment, and thus we are not surprised by the company’s topline challenges during the season,” Moody’s lead retail analyst Charlie O’Shea said in a note emailed to Retail Dive. “The other shoe to drop here, which will happen following the end of the quarter, will be how well margins held up, which will reflect the level of pricing and promotional discipline that Toys was able to employ during the season. This level of discipline will determine overall operating income performance, which is the key credit consideration.”