Nobody’s Buying Toys

Christmas Scrooge is beating Christmas Spirit (and retailers are worried)

Author

Tim Vollans
December 12, 2023 • Estimated Reading Time: 4 minutes

⚡ The Spark
Nobody’s Buying Toys

Christmas Scrooge is beating Christmas Spirit (and retailers are worried)

Let’s start with Hasbro. No Happy Holidays for 1,100 of their employees…

… the market headwinds we anticipated have proven to be stronger and more persistent than planned. While we’re confident in the future of Hasbro, the current environment demands that we do more, even if these choices are some of the hardest we have to make.

Today we’re announcing additional headcount reductions as part of our previously communicated strategic transformation, affecting approximately 1,100 colleagues globally in addition to the roughly 800 reductions already taken.

Some weakness was expected. Hasbro had already flagged a revenue decline of 13 to 15% driven by a ‘softer toy outlook’ in their Q3 earnings report.

Basically, people just aren’t buying enough toys.

The stock now trades at roughly the same price as it did when we hit the pandemic lows (peak panic):

Will the cost-cutting measures be enough to turn things around?

Or is the allure of physical toys going extinct in a digital world?

🧠 The Big Brain
UK wage growth continues to slow

Still at 7.3% - for how long...?

The data’s painting a very mixed picture of the UK economy.

In some regards, things are going great.

Wages are up & outpacing inflation. Unemployment’s stable at low levels.

But the trends look like they’re turning…

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💡 The Lightbulb
Finding Value In Hard Assets

Why buy struggling retailers

We talked about Hamley’s before, and our suspicion that the real motivation behind the 2019 purchase could be the land/building itself.

Across the water, Macy’s, the massive US retail chain, is the subject of a $5.8 billion buyout offer.

The question everyone’s asking is what the real value is.

More specifically - is it in real estate & land values, or the business itself…?

As of January, Macy’s owned more than 300 of its roughly 783 stores, which include Bloomingdale’s and the Bluemercury beauty chain. It owned an additional 102 locations, but leases the land the stores sit on. Four more locations are partly owned and partly leased, according to securities filings.

WSJ

It’s clear the the business has been struggling for a long time, as have many following the department store models.

‘Fast fashion’ & online retailers have frankly, wiped the floor with them.

By taking the business private, restructuring becomes far easier.

One option (morals aside), is to split the business in two.

Pass ownership of the real estate assets to a property holdings company and then have the operating company lease the use of the premises back to them.

Probably bad business for Macy’s the retailer, but great business for the private equity group that’s buying in. All those juicy rent payments and full ownership of the assets.

We’d bet on this as the most likely outcome.