Toys 'R' Us Bankruptcy: Christmas Comes Early For Walmart, Amazon

Toys "R" Us didn’t want to grow up.

But as it resisted, its peers grew bigger, stronger, smarter and more assertive. Now, the retailer is deteriorating, stunted by developmental delays while its matured contemporaries seize the sandbox.

Ever-evolving Wal-Mart Stores Inc WMT and Amazon.com, Inc. AMZN are poised to profit from the toy retailer’s Chapter 11 bankruptcy, according to KeyBanc Capital Markets.

WMT, AMZN Boast Perks Of Aging

Industry consolidation could catalyze growth for Wal-Mart in particular. With an expanding baby segment, the largest toy seller in the U.S. already represents 18 percent of Hasbro, Inc. HAS sales and 20 percent of Mattel, Inc. MAT sales.

“We believe that Wal-Mart’s toy and baby business is over two times Toys R Us’s domestic business (near $20 billion) and that its relative importance to the toy companies will only increase,” KeyBanc analysts Edward Yruma and Brett Andress wrote in a Wednesday note.

With exclusive products on trending brands, including Walt Disney Co DIS’s "Frozen," Wal-Mart finds the product category particularly profitable during the holidays. It not only drives traffic but also comprises enough of the store’s sales to merit heightened exposure by a near doubling of floor space, according to KeyBanc estimates.

Whatever market share Wal-Mart fails to capture could be seized by Amazon.

“We think Amazon’s convenience has made it one of the fastest growing baby toy retailers,” Yruma and Andress wrote. “We believe the company is likely third TGT) for toy sales but is likely growing faster than both retailers.”

What About Toys "R" Us?

While Wal-Mart and Amazon continue to ripen, Toys "R" Us might not live past its youth.

“While Toys R Us has obtained $3 billion in debtor-in-possession financing and will attempt to restructure, we believe that the Toys R Us business has fundamental, structural challenges that even predate the 2005 leveraged buyout,” Yruma and Andress wrote. “This funding likely makes a disorderly liquidation unlikely in the near term, but it could make $7.1 billion up for grabs long-term."

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Considering Implications For Hasbro And Mattel From The Toys 'R' Us Bankruptcy