Kid gloves off in child's play: As Toys 'R' Us expands in the UK, smaller outlets are under pressure

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ON A RAINY Sunday afternoon in Croydon the Sierra estates are jockeying for position near the local branch of Toys 'R' Us.

A snake of orange trolleys waits outside. Inside, the store looks like Santa's warehouse before distribution day: a wall of board games it would take a lifetime to play; a long, locked cabinet of Sega and Nintendo gizmos that shoppers have to order, pay for, then collect at the pick-up point outside. At the exit, the 18 checkouts are busy ringing up toys like they are cans of beans.

This might not be the way all mums and dads choose to buy their children's toys, but the trend is in this direction. In the eight years since the American-owned group transplanted its behemoths from the prairie to the UK, Toys 'R' Us has gobbled up more than 20 per cent of Britain's pounds 1.7bn toy market.

As the market has not expanded, every time a new store opens it takes a share of business from someone else. Toys 'R' Us now has 45 stores, would like to have 70 or 80 and has earmarked Glasgow, Norwich and Brighton as potential targets.

Behind the Americans are Woolworths and Argos, with around 13 per cent market share each. Everyone else, particularly the independent high-street outlet, is being squeezed.

'This year has been very tough for small toy shops,' says Jon Salisbury, editor of World Toy News. 'They are fighting Toys 'R' Us and their margins are under incredible pressure. The large retailers who are committed to toys are tightening the screws and sending out catalogues so customers can compare prices. The whole industry is consolidating.'

Hilary Monk, an analyst with the retail consultants Verdict Research, agrees: 'The independent sector has been declining very rapidly. You don't see too many on the high street these days. Those that have survived probably own the freehold of their shops.'

Many in the toy industry feel that the market is following the food retailing sector, where the big, out-of-town superstores killed the corner shop. The arrival of Costco, which stocks toys, and rumours that K-Mart, another US discounter, may come to Britain are likely to hasten the process.

Toys 'R' Us is an aggressive competitor. Founded in 1957, it became one of the first 'category killers', snatching an entire department away from department stores.

Now the group has worldwide sales of dollars 7bn and replicates the same formula in each territory it invades. Stores are 45,000 sq ft and stuffed with more than 20,000 lines - not just toys but bikes, books, train sets and electronic games, as well as pushchairs, car seats, children's clothes and nappies.

Toys 'R' Us's size gives it buying muscle with toy manufacturers, enabling it to peg prices at levels the independents struggle to match. But the independents say that Toys 'R' Us only discounts the top-selling lines. 'I think if you took a large trolley of goods and did a comparison, you wouldn't find it much cheaper,' says David Fogel, who runs Toy Stack, a chain of seven toy stores based in shopping centres around the M25.

David Rurka, the managing director of Toys 'R' Us in Britain, who was recruited from Dixons, spells it out: 'We're viciously the most aggressive on prices. We don't have special discounts. We have an everyday low-price policy. And if someone tries to undercut us, we will match them.'

Mr Rurka will not say who he is grabbing his market share from, but denies he is squashing the smaller toy shops. 'We have town centre stores in places such as Cardiff, Woking and Wood Green in London. In Woking there are still several small toy shops that are doing very well.'

The problem for the smaller shops is not just competition from corporate giants, but a dwindling pool of punters. Toy shops have lost playgrounds full of children to the computer games market (worth around pounds 700m last year, according to Euromonitor).

Parents do not buy their Sega consoles or Nintendo Game Boys in the local toy shop; they go to Dixons or a department store instead because they are cheaper. Children are also growing out of toys sooner, graduating either to video games or youth fashion.

Tills have not been ringing as loudly this Christmas as there has been no craze toy to replace Thunderbirds, last year's big hit. Captain Scarlet and Action Man have made successful comebacks, but have not matched the 'must-have' quality of Tracey Island.

The secret of independent survival is specialisation and service. David Fogel of Toy Stack says not everyone wants to spend hours buying toys in a warehouse environment.

'Toys 'R' Us are obviously competition but not a problem. They are an out-of-town retailer. We're not. And not everyone has a car to get to these stores anyway.'

Barry Walker has been running Conways Toymaster in Keighley, West Yorkshire, for 21 years. His shop is within 45 minutes drive of three branches of Toys 'R' Us but he feels that good, professionally run independents will survive.

'If a Toys 'R' Us opens nearby, the smaller retailer modifies the mix,' he says. 'They stock fewer branded toys and go for a specialism such as bicycles, railways or crafts.'

Mr Walker is also a member of Toymaster, one of the major buying groups many smaller toy shops join to increase their buying and marketing clout. 'We have 130 members, advertise on TV and have a 'corporate' catalogue.'

Niches can work. The Early Learning Centre now has 175 small shops specialising in educational and craft-oriented toys and games. But the available niches may be running out.

The big question is whether or not the toy industry's consolidation is good for the consumer.

Hilary Monk believes it is. 'I think the consumer is getting a good deal. Stores are more sophisticated and the prices are lower.'

David Fogel, not surprisingly, disagrees. His point is that once the major chains have driven the smaller toy shops out of the market, they will be free to put up prices, causing annual Christmas misery for parents.

'That could be the price the consumer ends up paying,' he warns.

(Photograph omitted)