KB Out of the Game
by Christopher Byrne
DECEMBER 15, 2008 TAGS:
It was game over for the second largest toy retailer when it filed for Chapter 11 bankruptcy on December 10, the second time in four years. While KB Toys’ demise had been anticipated, even expected, by many in the industry, the timing came as a surprise as most figured the store would try to hang on through the holidays. By filing Chapter 11, the store retains control over its assets as it tries to liquidate. But that’s not necessarily good news for its creditors, which include Hasbro, LEGO and other toy suppliers like Hong Kong-based Li & Fung that may be owed more than $27 million.
Ironically, it was the response to changing times that created KB, just as today’s rapidly changing economy has hastened its end. The company was founded in 1922 by the Kaufman Brothers (hence, “KB”) as a candy wholesaler. In the 1940s, they acquired a wholesale toy company as payment for outstanding debts. Due to sugar shortages during World War II, the candy business became a difficult enterprise. They abandoned it altogether, focusing instead on selling toys to the generation of Baby Boomers that sprouted up after the War. Other companies followed suit forming a rising tide of retailers. Those toy chains, like Lionel Leisure and Kiddie City are long gone. But KB stayed in business by focusing its expansion on another wholly American trend: the shopping mall.
Emerging from its regional location in New England, KB became a staple of the mall from coast-to-coast. The store sold discounted toys—mostly close-outs and previous years’ goods. As Americans relocated their shopping excursions from Main Street to the mall, KB Toys became a familiar sight. Throughout its history, the store held its own because of location, even as it faced increasing competition from Toys “R” Us and the specialty chains of the 1990s—Imaginarium, Noodle Kidoodle and Zany Brainy. KB (the name was officially changed from Kay-Bee Toys to KB Toys in 1981) distinguished itself by refusing to carry toy guns. It also, perhaps fatally, walked away from video games.
Though KB’s position snuggled next to food courts and escalators seemed secure, the landscape was changing. The growth and expansion of Wal-Mart offered the latest toys at deep discounts made possible by Wal-Mart’s massive retail model. Toys “R” Us, which went through its own challenges, emerged stronger than ever fully prepared for the Big Box revolution. Simultaneously, grocery stores, drug chains and mid-tier retailers like Target and Kohl’s also became players in the business. KB, averaging a minuscule 1,300 square foot per store, couldn’t compete on price or selection, and in 2004 it declared bankruptcy.
The business was reorganized, but it had a hard time finding its new way. The toy industry is not like typical retailers, with more than 70 percent of sales concentrated in the fourth quarter. The “everyday” sales that prop up business during the rest of the year went to Wal-Mart. The new management was largely made up of investors who failed to understand the dynamics of the business. As online sales boomed, the company tried to get in the game by acquiring eToys, but its efforts were dwarfed by the combined power of Toys “R” Us and Amazon.com. Meanwhile, Toys “R” Us, under its current management, became more streamlined and strategic, making it an even more formidable competitor and a more reliable source for consumers.
On recent trips to malls around the country, I’ve noticed that people are largely passing KB by, and that makes sense. Though parents say that they will be buying toys this year, they are sticking strictly to their kids’ lists. As a discount wholesaler, KB stocks neither the hot, new toys nor the action-packed video games that kids want. With nothing to draw parents in, the writing was on the wall.
Was this avoidable? In the current environment, probably not. As mall traffic has dwindled and the economy sunk deeper into recession, the toy industry has been more resilient than most. But it still is an item-driven business, powered by the specific requests and interests of children and not just by price. That wasn’t’ KB’s business model. They were ultimately overwhelmed by too many factors from size of stores to ability to stock goods to new economic realities in which parents still want to make dreams come true—but within their means.
Previous economic downturns have thinned the retail herd, and KB is the latest casualty. And the long-term impact on the toy industry? Not much, other than some short-term lost revenue, according to sources at toy companies like Mattel and Hasbro. The thing is, as long as people reproduce and buy things, the toy industry will survive, evolve and thrive.
Photo by Evan Semones
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Christopher Byrne, aka "The Toy Guy," is a 30-year veteran of the toy industry. He is a researcher, analyst and content director for the Web site, TimetoPlayMag.com.
Ironically, it was the response to changing times that created KB, just as today’s rapidly changing economy has hastened its end. The company was founded in 1922 by the Kaufman Brothers (hence, “KB”) as a candy wholesaler. In the 1940s, they acquired a wholesale toy company as payment for outstanding debts. Due to sugar shortages during World War II, the candy business became a difficult enterprise. They abandoned it altogether, focusing instead on selling toys to the generation of Baby Boomers that sprouted up after the War. Other companies followed suit forming a rising tide of retailers. Those toy chains, like Lionel Leisure and Kiddie City are long gone. But KB stayed in business by focusing its expansion on another wholly American trend: the shopping mall. Emerging from its regional location in New England, KB became a staple of the mall from coast-to-coast. The store sold discounted toys—mostly close-outs and previous years’ goods. As Americans relocated their shopping excursions from Main Street to the mall, KB Toys became a familiar sight. Throughout its history, the store held its own because of location, even as it faced increasing competition from Toys “R” Us and the specialty chains of the 1990s—Imaginarium, Noodle Kidoodle and Zany Brainy. KB (the name was officially changed from Kay-Bee Toys to KB Toys in 1981) distinguished itself by refusing to carry toy guns. It also, perhaps fatally, walked away from video games.
Though KB’s position snuggled next to food courts and escalators seemed secure, the landscape was changing. The growth and expansion of Wal-Mart offered the latest toys at deep discounts made possible by Wal-Mart’s massive retail model. Toys “R” Us, which went through its own challenges, emerged stronger than ever fully prepared for the Big Box revolution. Simultaneously, grocery stores, drug chains and mid-tier retailers like Target and Kohl’s also became players in the business. KB, averaging a minuscule 1,300 square foot per store, couldn’t compete on price or selection, and in 2004 it declared bankruptcy.
The business was reorganized, but it had a hard time finding its new way. The toy industry is not like typical retailers, with more than 70 percent of sales concentrated in the fourth quarter. The “everyday” sales that prop up business during the rest of the year went to Wal-Mart. The new management was largely made up of investors who failed to understand the dynamics of the business. As online sales boomed, the company tried to get in the game by acquiring eToys, but its efforts were dwarfed by the combined power of Toys “R” Us and Amazon.com. Meanwhile, Toys “R” Us, under its current management, became more streamlined and strategic, making it an even more formidable competitor and a more reliable source for consumers.
On recent trips to malls around the country, I’ve noticed that people are largely passing KB by, and that makes sense. Though parents say that they will be buying toys this year, they are sticking strictly to their kids’ lists. As a discount wholesaler, KB stocks neither the hot, new toys nor the action-packed video games that kids want. With nothing to draw parents in, the writing was on the wall.
Was this avoidable? In the current environment, probably not. As mall traffic has dwindled and the economy sunk deeper into recession, the toy industry has been more resilient than most. But it still is an item-driven business, powered by the specific requests and interests of children and not just by price. That wasn’t’ KB’s business model. They were ultimately overwhelmed by too many factors from size of stores to ability to stock goods to new economic realities in which parents still want to make dreams come true—but within their means.
Previous economic downturns have thinned the retail herd, and KB is the latest casualty. And the long-term impact on the toy industry? Not much, other than some short-term lost revenue, according to sources at toy companies like Mattel and Hasbro. The thing is, as long as people reproduce and buy things, the toy industry will survive, evolve and thrive.
Photo by Evan Semones
--
Related
NO-FRILLS ECONOMYby Michael Schaffer
Out with Linens N’ Things went some glorious gadgetry.
Christopher Byrne, aka "The Toy Guy," is a 30-year veteran of the toy industry. He is a researcher, analyst and content director for the Web site, TimetoPlayMag.com.
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COMMENTS (2)
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Art David wrote on December 15, 2008 2:01pm
This is a sad place to be. Some very fine retailers are folding up and calling it quits. When we started our business, Gopons Mobile Coupons, we expected to help promote business discount deals on mobile phones all over the country. We had no idea that some of the deals that would come available are with retailers in Chapter 11. Although there are great businesses out there that will survive this madness, the current economy is showing challenges. We just say, strap on your seat belts. It's going to be a bumpy ride. [Report Comment]
Marcia Greiner wrote on December 15, 2008 1:15pm
Chris: Your comments add an important chapter in the ever-evolving toy industry. It's sad to think of all the stores that have come and gone since I entered the toy industry in 1980. While the landscape continues to change, kids still need great toys with which to play and learn. It's sad that we have left the selection of such critically important foundation-forming products and toys in the hands of a very few buyers. Happy Holidays, Chris. Keep up the good work. Marcoa [Report Comment]
