Toy vendors and analysts hope the sale would allow the company to compete more effectively and react more quickly to the rapidly changing market.
NEW YORK — A recharged Toys R Us may help energize an industry suffering from price wars with behemoth discounters and from weaker sales because children want computer games and digital music players instead of stuffed animals, toy vendors and analysts said yesterday.
They are hoping that the $6.6 billion buyout of the nation’s second-largest toy seller by an investment group, if completed, would help the company react more quickly to the rapidly changing toy industry and compete more effectively with No. 1 rival Wal-Mart and other discounters, analysts and vendors said.
The investment group — which consists of affiliates of Kohlberg Kravis Roberts, Bain Capital Partners, and Vornado Realty Trust — has not given details about how it would change the struggling toy retailer. But the industry is generally optimistic that whatever it decides to do, it would help the toy business as a whole.
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“Today’s announcement added new life into the toy business,” said Jim Silver, publisher of the Toy Book, an industry magazine.
He added, “I can envision Toys R Us becoming a family entertainment store, where you can buy an iPod or an entry-level digital camera. It will be a one-stop shop” for children and their parents.
Chris Byrne, an independent toy consultant, noted that the investment group would help transform the company into a more viable store for today’s parents. He said a privately held Toys R Us also would help the company be more nimble.
“It will help them become a more streamlined operation with diverse products, not just toys, but lifestyle products,” Byrne said.
Since Toys R Us announced it was for sale seven months ago, toy makers were on edge. They depend on Toys R Us since it carries a much wider breadth of toys compared to discounters, and constantly tests hot toys.
“There was so much speculation about the future of Toys R Us, but this puts an end to it,” said Harold Chizick, vice president of promotional marketing at toy maker Spin Master.
Toys R Us shares rose $1.23, or almost 5 percent, to close at $26 yesterday.
Silver said many toy companies were worried that an investment group led by Cerberus Capital Management would emerge as the winner. He said Cerberus was expected to cut several hundred Toys R Us stores, while KKR is seen wanting to keep the retailer as a viable business even as it makes it leaner.
Silver expects about 20 percent of the company’s U.S. toy division — or about 140 stores — would be closed, which may depress the retailer’s sales volume by 10 percent.
The purchase of Toys R Us was inevitable given the gloomy prospects of the toy business, which has struggled with declining sales for the past two years. Toy sales have been hurt by discounters’ pricing wars, which contributed to the bankruptcies of specialty chains such as KB Toys, and FAO Schwarz last year. Under new ownership, FAO Schwarz is focusing on high-end merchandise.
But the toy industry is also struggling with a host of alternatives that grab children’s attention, from cellphones to digital music players. In response, toy companies are expanding beyond toys into home decor and children-friendly gadgets like affordable cellphones.
Toys R Us has made steps to develop more exclusive products with toy makers, become more competitive on price, and make the stores look more inviting, particularly since last August. Toys R Us gained market share this past holiday season, according to company officials, though holiday toy sales fell 1.4 percent.
Such changes in store experience and merchandising are expected to be accelerated as Toys R Us would have more flexibility in responding to trends.
The company still has a lot of hurdles to leap, however, not least of which is clawing back market share from its rivals.
Last year, Toys R Us had only 16 percent market share in toys, compared with Wal-Mart’s 25 percent, estimated Sean McGowan, a retail analyst at Harris Nesbitt. He estimated that Target was in third place, at 12 percent.
“There is definitely plenty of room for improvement,” Silver said.