Why Toys R Us still struggles

Last year was a good one for the toy business: With the help of tiny collectibles such as Shopkins, slapstick games such as Pie Face, and the merchandising juggernaut that is 'Star Wars,” the industry saw a robust five percent increase in sales.

And yet, big-box behemoth Toys R Us struggled to cash in on your kids' playtime.

The company reported this week that sales sank 1.4 percent last year at its Toys R Us and Babies R Us stores open more than a year. It posted a loss of $36 million - an improvement over last year's $130 million loss, but nonetheless a sign that the retailer still is in turnaround mode.

Dave Brandon, the chief executive of Toys R Us, laid out the problems on Thursday during a conference call with investors.

Some of it was fueled by big-picture cultural shifts. As video gaming increasingly moves to apps, the retailer's video games and electronics business slowed down dramatically. In fact, Brandon said sales in this area were $200 million short of what they were in the previous year. That's a meaningful hit for company that saw $11.5 billion in sales overall in 2016.

But there were some tactical errors, too. During the holiday rush, the toy chain saw its rivals go on a discounting spree - moves Toys R Us suspects were aimed at dumping inventory that simply wasn't selling that well.

Toys R Us, determined to protect its profit margin, decided not to get into the deals fray, which Brandon called 'a race to the bottom.” But that likely cost the chain some sales, and left it with a fresh problem: It now has an excess of inventory that it has to figure out how to unload.

Toys R Us says it plans to try to reinvigorate its stores by making them into more of a hangout: It wants to hold more in-store events for the community, and it wants to present more 'shop-in-shop” experiences such as the American Girl one it began presenting last year.

Other forces, too, could give Toys R Us a tail-wind: Industry analysts say that Hollywood's 2017 box office lineup could shape up to be a bonanza for toy land. There are some 20 movies being released this year that will come with major licensing programs, including 'Spider-Man,” 'Wonder Woman” and the 'Beauty and the Beast” live action musical from Disney that has already rung up $1 billion in ticket sales. That's an unusually large number, so it gives Toys R Us that many more hooks to lure shoppers back to its stores.