Toys 'R' Us expands with acquisition of retail brand RIOT

Toys ‘R’ Us springs back to life

In 2018 Toys ‘R’ Us collapsed after failing to find a suitable buyer, closing 44 brick & mortar stores and letting go over more than 700 employees. The collapse followed the collapse of the parent US company and, with losses totalling over $100 million in the prior seven years, the Australian company couldn’t continue as a standalone entity.

12 months following the collapse Hobby Warehouse signed an exclusive 30-year licensing agreement with Tru Kids Inc, the new owner of Toys ‘R’ Us and Babies ‘R’ Us, and relaunched the brand online.

Toy’s R Us secures much needed investment

Since re-launching the company has had strong growth from $0 revenue in 2020 to $32m in 2023, however it has continued to operate at a loss, which has scaled along with the revenue growth. From revenue of $21.8 million in 2021 & a EBITDA loss of $4.4 million to $32.1 million and $9.0 million, respectively, in 2023 - full breakdown below.

This results in burning through $12.5 million from operations in 2023, leaving just $1.8 million in the bank. Along with the acquisition announcement Toys ‘R’ Us also announced that it has secured a much needed $5 million capital injection.

Crafting a new chapter

Nostalgic toy company Toys ‘R’ Us (“TOY’s”) announced the strategic acquisition of 50-year-old Arts & Crafts retail brand RIOT on the 20th of March 2024. RIOT has a customer base of over 500,000 retail customers and 2,400 wholesale customers, the merging of the two companies will provide the synergy of cross marketing, for each product offering, to a wider audience.

The acquisition of RIOT assets “strengthens TOY's position in the growing e-commerce market and expands its House-of-Brands offering by adding additional, complementary products across a number of highly profitable categories.”

The deal is structured as $247,000 in cash, $350,000 in TOY’s shares at $0.10 per share and up to an additional earn-out of $500,000 in shares each year for the next two years. The earn-out is calculated as 10% of RIOT’s contribution margin (revenue less cost of goods, marketing & shipping).

Closing remarks

CEO Penny Cox stated “[Financial Year] 2024 is really a year of stabilisation and restructuring. I’m not expecting crazy growth this year – it’s all around focusing on profitability”. After successfully achieving profitability the company may look to bringing back physical stores across Australia, although it may not look like the massive toy warehouses they once were, it will likely be a ‘store within a store’ (think Myer or David Jones).

We hope TOY’s is able to successfully reach profitability and that the generation that grew up with Toys R Us will be able share that experience with their children.