Macy’s Play With Toys R Us Could Be Building Blocks To Digital Marketplace

While many industry watchers saw Macy’s partnership with Toys R Us as a category expansion that will help the omnichannel retailer bring more customers online and in-store — which it likely will — the collaboration may also be a big first step toward challenging Amazon, Walmart and other digital marketplaces.

Marcel Hollerbach, chief innovation officer at eCommerce tech company Productsup, told PYMNTS that as retailers look to create hybrid approaches for stores and eCommerce operations, “you see more and more retailers becoming marketplaces themselves,” especially those with a customer base the size of Macy’s.

“If you’re putting more and more focus in growing that consumer base digitally, it makes a lot of sense to leverage your brand, become more of a one-stop-shop,” Hollerbach said. Another side effect, he added, is that a marketplace model reduces the amount of merchandise retailers need to keep in a warehouse.

See more: Macy’s Brings Back Toys R Us, Exceeds Q2 Expectations

Jeff Gennette, CEO of Macy’s, told investors and analysts on a conference call last week that the partnership appealed to the retailer because of the success it saw in toys at its off-price Backstage shops as well as the brand recognition Toys R Us has among most millennial parents.

Gennette said Macy’s intends to expand the categories Toys R Us is currently in and do plenty of marketing around the partnership, with “lots of opportunities to expand it both online and in our stores.” The CEO said he believes Macy’s can quintuple the size of the Toys R Us business.

“It’s a big growth factor for us,” Gennette said. “It’s actually at pretty decent margins and obviously those footsteps, eyeballs to be able to translate into other categories is the big win.”

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If Macy’s is to make a marketplace model work, Hollerbach said the retailer “probably needs to catch up a little bit, especially when it comes to digital competence, but they’re making progress.” He added that Macy’s partnership with Toys R Us is a move that could help push the company forward, akin to how Walmart’s acquisition of Jet.com brought a lot of eCommerce knowledge in-house. “It’s those bold moves that move companies forward, and this Toys R Us play is a bold move to some extent.”

Suzi Tripp, vice president of insights at digital transformation firm Brooks Bell, said the move is also similar to the partnership between Kohl’s and Amazon, which brought over 2 million new customers into Kohl’s stores in 2020.

“Digital sales represented 53 percent of Macy’s total sales last year, so this likely represents a mature part of their organization that is well-executed,” Tripp told PYMNTS in an email. “Since this partnership is also available via digital channels, this announcement expands Macy’s toy offerings, ties it to a sought-after brand, and offers products where customers want to buy them — online.”

Power Of The Brand

To be sure, the Toys R Us brand has been mired in financial issues for several years after billions of dollars in debt led to underinvestment in stores and operations that ultimately saw it falling behind competitors, especially as eCommerce took hold. Hollerbach said, though, that the general public likely doesn’t know the specifics of the toy retailer’s 2018 bankruptcy and subsequent sales.

A much stronger pull, he said, is the emotional attachment that millennials have toward Geoffrey the Giraffe — as well as the propensity of parents to spend more on children than they do on themselves. “It would be like Disney going bankrupt and then all of a sudden, 10 years later, they’re back,” Hollerbach said. “Nobody would care where they came from. Everybody would be happy they’re still around.”

In expanding the presence of the Toys R Us brand, Macy’s is also likely to utilize social networks and other burgeoning social commerce platforms to reach Gen Z and other younger consumers. Social commerce, which refers to discovering and purchasing products directly through social platforms, is projected to reach over $36 billion this year, accounting for 4.3 percent of retail sales. By 2023, social commerce is likely to make up 5 percent of sales.

Hollerbach said if Macy’s integrates Toys R Us successfully, “it should be a nice addition and should be high margin for them” — but the key is doing it right.