Bankrupt Toys R Us could go out of business next week, close all U.S. stores

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WAYNE, N.J. — Bankrupt retailer Toys R Us might shut all its U.S. stores as soon as next week, according to several reports.

That’s terrible news for the two biggest publicly traded toy companies. Investors are clearly preparing for the worst. Shares of Hasbro fell 3.5 percent on Friday morning, while Mattel plunged 7 percent.

Smaller toy company Jakks Pacific fell nearly 5 percent too. Canada’s Spin Master, which owns the popular line of Hatchimals toys, was down about 3 percent as well on the Toronto Stock Exchange.

And everything isn’t awesome for privately held European toy giant Lego either.

The plastic bricks maker reported its first sales drop in 13 years earlier this week. So these are clearly tough times for the toymakers.

A spokesman for Toys R Us declined to comment on the liquidation chatter.

Toys R Us recently went into administration in the U.K., paving the path for stores there to shut their doors.

And the potential closing of Toys R Us in America would be a particularly huge blow to Hasbro and Mattel.

According to recent regulatory filings from both companies, Toys R Us accounted for nearly 10 percent of the companies’ overall sales.

Toys R Us is the last megastore dedicated to toys. Without it, toymakers will struggle to promote anything but their most popular items.

The death of a top customer is the last thing that Mattel and Hasbro need right now.

Mattel’s overall sales during the fourth quarter fell 12 percent from a year ago, led by big drops for the Fisher-Price, American Girl and Lego competitor Mega Bloks brands.

Hasbro reported a decline in sales during the fourth quarter despite the fact that the Nerf and My Little Pony owner now holds nearly all of the lucrative licenses tied to movies from Disney and its many other studios — Pixar, Marvel and Lucasfilm.

Hasbro said “Star Wars” product sales fell in the fourth quarter, as did sales of Disney “Frozen” toys.

The softness in the toy industry is partly because of the rise of video games and other high-tech toys that kids are increasingly playing with instead of action figures, dolls and board games.

But the shifting tide in retail isn’t helping either. The dominance of Amazon has put pressure on many consumer products companies as Amazon has made a relentless push to lower prices.

Recent struggles at Walmart and Target are also hurting Hasbro and Mattel.

Walmart is the largest customer for Mattel and Hasbro, accounting for about 20 percent of total sales for each toymaker. Both toy companies get nearly 10 percent of their revenue from Target too.

So what’s next for Mattel and Hasbro?

Investors are still hoping that Mattel’s new CEO Margo Georgiadis, formerly an executive at Google, will be able to turn around the company with a greater focus on interactive toys.

Time might be running out for both companies though, which is why there have been frequent rumors that Hasbro may buy Mattel.

Investors have dreamed about a possible merger between the two companies since November after a story in the Wall Street Journal that said Hasbro was going to make a bid.

Reuters later reported Mattel turned Hasbro’s offer down.

Takeover chatter resurfaced in late January. A spokesman for Mattel said at the time the company had no comment on the new speculation.

But as long as both companies continue to struggle, expect merger rumors to keep swirling.