Dive Brief:
- A judge has ruled Toys R Us can move forward with its plan to liquidate, despite a joint motion from suppliers, including Mattel, Playmobil and Lego, objecting to the retailer's "wind down motion" as it shutters stores across the U.S.
- Vendors argued Toys R Us should return their inventory, rather than using it to liquidate and pay its creditors. The retailer also said it could return items in transit to suppliers, but at the manufacturers' expense.
- Lego, which describes itself as a "significant vendor" to Toys R Us, said in a court document the toy retailer owes Lego more than $30 million. Playmobil says Toys R Us owes it $500,000.
Dive Insight:
With the toy retailer moving ahead with its liquidation plans, suppliers are left with missing payments and missing inventory.
Vendors will only get their in-transit items returned if they were shipped in a single container. But if goods were shipped in a mixed container, Toys R Us attorneys say there's no guarantee the suppliers will get their inventory back.
For vendors to bounce back, they'll need a robust risk management strategy, strong financial health and alternative customers or marketplaces to sell their goods.
A proactive risk management strategy would include "what-if" scenarios for a shipment damaged in transit, or a customer going out of business. News last September of Toys R Us filing for bankruptcy was a signal to vendors of the urgency to develop a back-up plan for the retailer closing its doors.
Just as companies diversify their supply base and avoid single sourcing, vendors must also diversify their customer base, especially as retailers left and right are filing for bankruptcy.
As one of the last remaining specialty toy retailers in the U.S., toy suppliers will no doubt take a hit from Toys R Us' closure. Lego says the decision to liquidate will cause "inevitable harm ... on all the company's stakeholders."
The liquidation will be especially taxing on small toymakers — possibly so much so that it drives them out of business. Smaller business naturally have smaller inventories and less capital. If a container or two is never returned, that could be a significant cut of the supplier's inventory. Similarly, a single payment could make or break a small supplier's budget.
