A number of ASX-listed retailers could come under pressure from news that a major competitor is coming back to our shores after collapsing into administration.
The Toys R Us and Babies R Us brands have been licensed to privately owned online retailer Hobby Warehouse will relaunch the business next week after the US toys and baby products mega-mart succumbed to debt and falling sales a year ago.
The news could put pressure on the Baby Bunting Group Ltd (ASX: BBN) share price, Woolworths Group Ltd (ASX: WOW) share price, Wesfarmers Ltd (ASX: WES) share price and Myer Holdings Ltd (ASX: MYR) share price as their retail outlets have benefitted the most from the demise of the once market leader.
Toys R Us is the new digital threat
The revived brands will first be launched online but Hobby Warehouse plans to also open bricks and mortar stores in a year or two, according to the Australian Financial Review.
The new stores will be significantly smaller than the previous format and they will primarily serve to allow customers to touch and feel the products before purchasing them online.
While there isn't any word on the number of stores Hobby Warehouse plans to open, it's probably a safe bet that it won't be many as online is the main game with experts predicting that nearly half of all toys sold will be through virtual stores by 2023.
It's the lower priced items under $30 that are more likely to be bought online, in my view. This should be particularly troubling for our listed retailers as Woolworth's Big W department store and Wesfarmers' owned Kmart and Target stores are believed to have taken up most of the market share after the collapse of the Toys R Us stores.
Can Toys R Us regain all lost sales from ASX retailers?
Further, these traditional department stores don't have good online portals and a higher cost structure, and that makes them more susceptible to the reinvented "R Us" business, which was the largest in Australia with 20% of the market and nearly $300 million in sales.
Hobby Warehouse believes it can recoup all of the lost sales over time and has told the AFR it plans to "double and triple" sales over the next few years.
The Toys R Us and Baby R Us websites will carry 10,000 including top brands like Lego, Disney, Fisher Price and Barbie. The AFR also reports that Australia was the first country to revive the brands and Hobby Warehouse had signed a 30-year exclusive licencing deal with the new owners of the "R Us" business.
Both the Toys R Us and Baby R Us brands are highly recognisable and investors should be paying close attention to developments in this space. I won't be surprised to see analysts pull back some of their earnings forecasts for the abovementioned ASX-retailers over the coming months.
In other words, ASX retailers most exposed to toys and baby products could soon be facing a cum-downgrade cycle.
