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UBS: Increasingly, Toys 'R' Sold Online

UBS: Increasingly, Toys 'R' Sold Online

Toyland is increasingly a virtual place.

Online toy sales will see a modest increase over the coming years, according to the newest UBS Evidence Lab eCommerce Retail survey, and more than one-third of toy purchases could be made online by 2022 — up from about 23 percent of sales now.

That implies online toy retail growth of more than 10 percent, and no growth — or even a slight decline — at brick-and-mortar stores over a five-year period.

Online buyers are more likely to be urban dwellers and more affluent.

"The suburban toy buyer may be the next to adopt," UBS analyst Arpine Kocharyan said in a Wednesday note.

Toys are in the top five categories of consumer products purchased online, behind only music, books and electronics, the analyst said. (See Kocharyan's track record here.)

Toys R Gone

The toy retail landscape changed dramatically this year with industry icon Toys "R" Us announcing it was closing all its stores.

With the best-known toy retailer out of the picture, who;s in the best position to benefit from the increase in online sales?, Inc. (NASDAQ: AMZN), according to UBS.

"We believe toy online is still growing at two to three times that of brick-and-mortar, with Amazon likely to become the third largest toy retailer in '19-'20," Kocharyan said.

The trend is part of a larger shift to online buying. UBS analysts said earlier this year could mean the closing of tens of thousands of brick-and-mortar retail stores over the next few years, potentially erasing the equivalent of seven Toys 'R' Us chains.

More Convenient

Nearly half of respondents in the UBS survey said e-commerce being "more convenient than stores" is a reason for shopping for toys online. More than 40 percent said online sellers having a larger selection. Other key drivers for spending on online toys include low prices and the availability of online reviews.

The primary reasons survey participants gave for shopping in physical toy stores were the simple enjoyment of the experience, as well as the ability to check the look and feel of a toy.

The Holiday Environment

Online spending started off weaker in the early part of this year's holiday season, but was boosted by Black Friday deals, according to UBS.

About 25-35 percent of online toy sales typically occur in the week of Black Friday and Cyber Monday. This year, Cyber Monday saw 46 percent more toy sales than Black Friday, and sales on that day were much stronger than in prior years thanks to bigger discounts than in previous years, according to UBS.

The Outlook For Hasbro, Mattel

Online sales have driven close to 20 percent of business for two well-known toymakers, Hasbro, Inc. (NASDAQ: HAS) and Mattel, Inc. (NASDAQ: MAT), and they're expected to continue to grow. But USB noted retailers are cautious about taking inventory risk into the holiday season, even with efforts underway to take share as a result of the Toys R Us demise.

USB is cautious on both Hasbro and Mattel going into the fourth quarter.

"Longer-term, we believe Hasbro is better-positioned to leverage more converged retail to drive growth," Kocharyan said. "Further investment for Mattel in omnichannel could be limited given its constrained balance sheet."

Related Links:

Toys 'R' Us Closures Hurt Hasbro's Q3 Earnings

MKM Partners: After Toys 'R' Us Struggles, Hasbro Poised For Strong 2019

Latest Ratings for HAS

Mar 2021Truist SecuritiesMaintainsHold
Feb 2021BMO CapitalMaintainsMarket Perform
Feb 2021DA DavidsonMaintainsBuy

View More Analyst Ratings for HAS
View the Latest Analyst Ratings


Related Articles (HAS + MAT)

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