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Toys 'R' Us Asia to ramp up regional store growth after separation from troubled US owner: CEO
“I DON’T wanna grow up,” its catchphrase jingle may run - but Toys “R” Us Asia is headed for a growth spurt, after the erstwhile joint venture announced a separation from its former US parent last week.
It is going to be business as usual for Toys “R” Us in the region, despite the recent change in ownership, according to a press conference held by Toys “R” Us Asia’s president and chief executive on Monday.
Regional operator Toys “R” Us Asia will in fact be ramping up investments in both its information technology (IT) systems - such as e-commerce operations - and bricks-and-mortar retail outlets, including its eight outlets in Singapore. It is also set to re-open its Great World City and City Square Mall branches in December, after renovation.
“The separation from our previous parent company, Toys ‘R’ Us Inc, means that our current shareholders - both Fung Retailing and the Taj note holders - are focused on and interested in only one thing: the development and growth of Toys ‘R’ Us Asia within our countries,” the group’s head, Andre Javes, told the press over the phone from Hong Kong.
Toys “R” Us Asia used to be a joint venture between the Fung Group’s private Fung Retailing arm and United States-based Toys “R” Us Inc, which filed for bankruptcy protection in 2017.
But note holders of the beleaguered American parent - mostly US-based investment funds and financial institutions - have just taken a deal that left them with a collective 79 per cent interest in the Asian business. Mr Javes also said that the regional group is paying for the licence to the brand name for at least 20 years.
Under the new ownership, Toys “R” Us Asia - which has more than 500 stores regionally, including franchises in Macau and the Philippines - will be putting money into refurbishing its outlets and opening new ones, said Mr Javes.
The group also plans to upgrade its IT systems and better use data for both in-store customer engagement and its loyalty and digital networks.
Raymond Burt, the Singapore-based group country director for South-east Asia, told reporters: “The IT, the e-commerce platform, we’ll continue to invest here - that’s important for us. And, you know, new stores.
“We just keep on looking for opportunities for new stores. Singapore’s pretty very small, so we’re getting a lot of stores here. I’ve got specific shopping centres I want to get into, but I can’t say (which), no.”
On how many stores would be too many for a market of Singapore’s size, he said: “Well, if we get the Babies ‘R’ Us brand, who knows. If we get that right.”
The group is now testing in the region a new set-up for its Babies “R” Us brand, which used to be co-located with the City Square Mall outlet but is no longer available in Singapore for now.
While the management would not share the breakdown between online and bricks-and-mortar sales, Mr Javes noted that e-commerce revenue growth has outpaced its offline equivalent.
“We’re a company that is and has been growing consistently, for the last 10 years,” he said. “Certainly, our growth has been exponential in the last five.”
Mr Javes said that the Asian business has fared better than the former parent in the US because stores are located inside shopping centres, not on their own.
“The cost of marketing becomes much higher when you’re having to try and bring people to a standalone location. The operating cost for the business is much higher,” he noted.
“What is unique with the US or with most Western countries is the sales pattern,” Mr Javes added. “The majority of the sales for the company occurred in the last two or three months of the year, for Christmas or holiday season.
“This means that your whole year rests on your ability to execute and deliver your Christmas plan, and if that fails, then you’re really challenged for your full year’s results.”
He said that sales are more distributed throughout the calendar year in Asia, supported by a wider variety of festivities, such as Golden Week in China, where the group has 166 stores.
Toys “R” Us stores in the region are less than one-quarter the size of their American counterparts, at some 10,000 square feet on average.
The management would not disclose the group’s financial performance or the share of contributions from Singapore operations.
Still, records from the Accounting and Corporate Regulatory Authority show that Toys “R” Us (Singapore) chalked a profit after tax of S$8.05 million, for the year to Dec 31, 2017 - up by 32.8 per cent on the previous year. This came on a 16.9 per cent rise in revenue, to S$77.2 million.
Toys “R” Us Asia has said that one of the effects of the US firm’s Chapter 11 bankruptcy filing was the negative spillover onto its Asia-Pacific operations.
“As you can appreciate, over the last 18 months, since the parent company announced bankruptcy proceedings called Chapter 11, this has had some contamination effect to us and confusion amongst our community of partners that we have - but also, more importantly, confusion amongst our customers who were confused as to whether we were in bankruptcy or we were, in fact, closing down,” said Mr Javes.
“Of course, we made sure that we kept everyone informed to remind them that we were a separate legal entity and we were not part of the US bankruptcy filing. And this is a message that we’ve repeated consistently.”
Of the hit to the Singapore business, Mr Burt said: “Some of our partners - which would be our vendors - probably got a little bit nervous, and landlords, potentially. And customers - I’m sure there’s a group of customers out there who are concerned.”
But he added that he did not think that the impact of the “contamination” was material.
Mr Javes also told the press that the changes at Toys “R” Us Asia “are at the shareholding level, not at the operational level of the company”.
“So, of course, because we’re a company that’s growing, we’ll be recruiting more employees. We’ll be increasing the talent and the resources that we have in those countries as we, for example, increase our store count,” he added.
“We don’t envisage major structural changes out in the various marketplaces.
“We do have a number of functions that, as we become a complete standalone entity, we will be looking to add into our Hong Kong office, our regional headquarters, simply because we have a need for those resources that were previously supported via the US . . . But these are minor. There’s nothing major that we have on the slate for change at this time.”
As for the licensing arrangement, he noted that Geoffrey, LLC - a Toys “R” Us Inc subsidiary that acts as a holding company for the intellectual property rights - will “run the brand as they have previously”. Geoffrey announced in October that its secured lenders would be acquiring its assets, after a five-month marketing effort failed to net any comparable bids for the rights.
“That means no change for us at all,” said Mr Javes.
Asked whether Toys “R” Us Asia might consider making an offer for the trademarks, he said: “At this point in time, I’m not aware of what their plans are in terms of re-auctioning and so forth. My understanding is that they want to continue to operate and run the brand.
“But, you know, anything’s possible. I guess, for the future, we would let you know - certainly, you’d read about it if there was any change to their current practice - but I’m not aware of that occurring at this stage.”
This was in line with another question about whether the group, which is now 21 per cent owned by Fung Retailing, is weighing an initial public offering (IPO) for Toys “R” Us Asia.
“My answer at this point is no, but, you know, the caveat there is that this a decision that the board would make further down the track,” he said.
“Certainly, where we are at today - we are in growth, we are in investment phase for our company - we want to bring in and settle down the new shareholding over the coming six months and execute on our objectives for 2019 . . . At this point in time, there’s no discussion with regard to the board in terms of considering an IPO. At this point in time.”