Toys 'R' Us demise sparks industry shakeup

Toys 'R' Us has fallen into voluntary administration and it could herald major changes to the international toy industry.

Following the demise of the chain both in Australia and overseas, analysts say a merger boom is on the cards as smaller toy manufacturers aim to recoup their presence in the market.

Smaller toy makers who traditionally relied on Toys 'R' Us as a launch platform will now try to improve their chances at getting stocked in giant retailers including Target and Walmart.

According to China Market Research Group analyst Shaun Rein, smaller toy companies will rely on mergers and acquisitions (M&A) to gain more negotiating power with bigger retailers who are notoriously "picky" about which brands they stock.

"If you're a young brand, it's hard to be found," says Rein.

"A lot of the smaller niche brands that you'd buy because you'd seen them while browsing in Toys 'R' Us are going to be hit very hard."

Toys 'R' Us operates 44 retail stores across Australia and employs around 700 permanent staff.

Voluntary administrators McGrath Nicol were called in when a final bidder in the sale process for Toys 'R' Us withdrew its interest in the company.

Many companies in the United States have reportedly already jumped on the M&A bandwagon after the collapse and liquidation of the 700-store Toys 'R' Us American chain in March.

CEO of Florida-based toy maker Basic Fun! Jay Foreman says consolidation talks between his firm and smaller players has "easily tripled" since September last year.

Kate Clark is the founder and president of Yottoy Productions, the makers of Paddington bear, and she says companies in the US are even beginning to question the role of bricks-and-mortar retailers altogether.

"More companies are now questioning, where are the biggest opportunities to sell toys," she says.

"Unfortunately, some toy companies may struggle greatly and some may not survive."

Now that Toys 'R' Us in Australia is on its last legs, time will tell whether the dominos will fall in the Australian market as they continue to do in America.