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Toys ‘R’ Us leans on itself for the next big toy hit

Toys R Us In-store shoot in Totowa, NJToys R Us In-store shoot in Totowa, NJ
A Toys R Us In-store shoot in Totowa, New Jersey.Photograph by Dave Kotinsky — Getty Images for Toys "R" Us

Big blockbuster movies are expected to do big business in the toy aisle this year.

But the U.S.’s largest toy retailer – Toys ‘R’ Us – doesn’t plan to fully rely on toys tied to hit film properties to help boost sales. It will also generate a ton of business from its own, internally created toy lines.

Toys ‘R’ Us generated 14% of its sales from its private brands in the first quarter of this year. Those toys generate higher gross margins and thus help boost profits.

Some of the retailer’s successful, internally developed lines include Journey Girls dolls, True Heroes action figures, and educational toys under the Imaginarium brand. The retailer is also planning to debut a new baby doll line later this year, which is in addition to the You & Me brand Toys ‘R’ Us has already developed and sells.

“We are looking at private brands and branded products together to offer a more diverse assortment,” said Toys ‘R’ Us Chief Merchandising Officer Richard Barry.

The strong focus on private-label brands comes as Toys ‘R’ Us looks at any way it can differentiate what it sells at its stores versus what competitors stock. The brick-and-mortar retailer not only battles with Wal-Mart (WMT) and Target (TGT) but also online rivals like (AMZN) for a slice of consumer spending on toys. Toys ‘R’ Us often also seeks exclusive items from toy manufacturers to win over shoppers.

But sales at the nation’s largest toy-focused retailer remain challenged. U.S. same-store sales slipped 4.5% in the key holiday quarter last year, and they also dropped in the first quarter of this year.

Private brands can potentially help turn the tide. Journey Girls, for example, has been on shelves for five years and have sold close to 1 million dolls globally. Because it does so well, Toys ‘R’ Us prominently stocks the dolls within its stores.

But just because Toys ‘R’ Us is backing Journey Girls and other private brands doesn’t guarantee that it’ll always give those lines prime shelf space. Barry says the retailer needs to be sure it is stocking merchandise customers want.

The Journey Girls Toy Line Photo by Michael Cardone
Courtesy of Michael Cardone

“Every product has got to pay for its space on the shelf,” Barry said. That means if a private brand isn’t selling well, Toys ‘R’ Us won’t stock it.

While many retailers, including drugstore chains, department stores and grocery stores, have used a private label strategy, there is no guarantee that the lines those retailers produce will be a hit. Toys ‘R’ Us’s bid to enter the children’s tablet market with the debut of a device called Tabeo fell flat. Less than three years after that launch, Toys ‘R’ Us still sells children’s tablets, but Tabeo isn’t among them.

Ron Friedman, a retail consultant for accounting and advisory firm Marcum LLP, says that retailers often commit a lot of time, money, and staff to develop a private label, which may ultimately fail to woo customers.

“Most find that the first few seasons are not profitable until all the kinks are worked out,” Friedman said. He adds there are plenty of benefits for retailers if the line takes off, saying Toys ‘R’ Us can potentially create a unique product that will stand out in the retail landscape, as competitors won’t be able to stock the same item.

Journey Girls is one of Toys ‘R Us’s well placed bets. The line has added dolls and accessories as it has expanded since its 2010 debut.

“It is a very successful private brand,” Barry said. “One that will have great longevity.” And in the toy aisle, an industry dominated by short-lived fads, endurance is a prized commodity.