Toys R US vs KB Toys | The Comeback Kid, Plus Hot Wheels! | 5

0:07I'm David Brown and this is Business Wars.

0:29The retail toy market has seen its fair share of ups and downs over the years, but one thing is certain. Playtime will never go out of style. Even as the trends change, there will always be a place for toys on the shelf, regardless of whether that shelf is hanging in your kid's room or your own office. But the toy store as we know it is certainly evolving. Joan Verdon is a senior contributor for Forbes.com who's covered the industry since the mid-90s. She had a front row seat to some of the biggest Toys R Us moments of the early aughts. And now she's bringing us up to speed on where the legacy toy store stands today.

1:04Later on, we'll be switching gears to focus on one of my all-time favorite toys. They're new. They're authentic. They're the fastest miniature metal cars you've ever seen. New Hot Wheels, only from Mattel. Our guest, Bruce Paschal, has the most valuable and historically complete collection of Hot Wheels in the world. His collection is so impressive that he recently transformed it into a museum. and Bruce is joining us to talk about the history of these iconic tiny cars. Get ready to feel like a kid again because there's a whole lot of toy talk coming up.

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3:52Joan Verdon is a senior contributor at Forbes.com. Joan, welcome to Business Wars. Nice to be here. Can you remember the first time you went into a Toys R Us? I'm a baby boomer, so I didn't grow up as a Toys R Us kid, but I was very much a Toys R Us mom in the 1980s and the 1990s, which was when they really exploded and there were just toys piled like from the floor to ceiling, aisles and aisles and aisles of them. And, you know, you'd let them walk through the whole store and then say you can pick out any toy that's$5 or$10 or whatever your budget was. And there were so many choices almost that they couldn't decide.

4:31And then they would pick something and they would just be happy with what they picked and then you would leave. It's kind of crazy when you're talking about being a Toys R Us parent. Goodness knows I've been there. I can remember when kids would start to get unruly or squirrely on a rainy day, you know? Exactly. And we would just pile into the family truckster and we'd boogie on over to Toys R Us. And that would take up at least an hour. Right, right. Well, now, Toys R Us is one thing. What about KB Toys? Do you remember your first experiences with KB Toys? Oh, definitely. Unfortunately, that was very much the mall toy store, and it was smaller.

5:11It seemed to be much more of the discount experience. And that was you're at the mall with your child, and you'd say, if you're good and you put up while I buy clothes or you try on clothes for mom, and if you're good, then we can stop at KB on the way out. And a lot of times it seemed like the toys were maybe from last year or just very basic toys, not the latest, the hottest toys, because Toys R Us had sort of cornered the market on all those. I think that's, you know, and it was almost like a store for impulse purchases. I used to wonder who would actually come to KB Toys, especially when there was Toys R Us.

5:48But that was part of the business strategy, wasn't it? They were trying to pick up people who were at the mall and who maybe wanted to pick up a thing or two for the kids or trying to sort of placate the kids. That was built into the way that KB approached its sort of mall strategy, wasn't it? Oh, yeah, definitely. And I spent a lot of time covering malls when I was at the Bergen Record, now called the Record of North Jersey, because we had in Paramus, New Jersey, which was also the headquarters of Toys R Us, There were four major malls within a three-mile radius. And one thing I'd always hear from the malls and from shoppers at the malls, if they didn't have a toy store, they'd say, well, the one thing this mall needs is a toy store.

6:31And so malls were always looking for like a place, if they didn't have a KB, to get something like a KB, even if it was a small store just for that component of the person who was there doing other shopping and they needed to grab some toys. Oh, that's so interesting. So the mall owners themselves needed, in a sense, something like a KB, and KB fit that niche. Right, exactly. Now, how did you end up on the toy beat specifically? The paper I worked for, because Toys R Us was headquartered in Paramus, they always made Toys R Us a big focus of their business coverage. And I started in 1996. I went to all of the shareholder meetings.

7:10Anytime Toys R Us opened a new store in the tri-state area near New York, I would go interview the CEOs. And starting in 1996, I was doing more toy trends reporting. And then in 2003, I took over doing the business side of Toys R Us finances. Well, there was a lot to cover right around that time for sure. Do you feel like – I mean, there have been a lot of headlines. My kids were very excited about this, by the way. Is Toys R Us really back, as some of the headlines say, do you think? Depends on how you define back. The Toys R Us stores overseas never closed because they were separate licensed operations.

7:50And they've stayed on doing tremendous business after the U.S. Toys R Us stores disappeared. Several years ago, a company that specializes in owning brand names acquired a majority stake in Toys R Us. And basically what they've done is created partnerships with other people to use the Toys R Us name. So Macy's now has many toy stores in nearly all of its department stores. And they're branded Toys R Us. The Macy's buyers pick out the toys. They sell the toys. They fulfill the toys. If you buy them online, Macy's is going to mail the toy to you. But you're not really buying it from Toys R Us. you're buying it from a store that's using the Toys R Us name, because the thinking is that the Toys R Us name is such an iconic, valuable name.

8:40What does that mean for Toys R Us to have that brand presence and the toys in a Macy's? Are you getting toys that are not as carefully vetted? Does it make an experience for the shopper at all, do you think? It depends. In the Macy's flagship store in Herald Square, it's a pretty nice experience. You know, they have tables where kids can play. They have a giant Jeffrey the Giraffe statue, the Toys R Us mascot Jeffrey. They have cars that kids can sit in. They have photo opportunity spaces. The toys are laid out beautifully. In one of the lesser Macy's, maybe somewhere in the Midwest, the Toys R Us section could be tiny, and most people walk through it, and they're sort of like, huh, you know.

9:30And there's nobody working there who's a toy expert or anything like that. The Toys R Us, they do maintain some, like, branding control. And they consult with, like, say, the Macy's buyers about what toys are there. And the big toy manufacturers with the hot toys, they want to be in those Macy's spaces because they are doing well. And it was very important for the Toys R Us owners to get that placement because that suddenly gives them all this retail square footage, in-person shopping. in over 400 Macy's stores because if they were going to suddenly come in and try to open 400 of their own stores, they would never be able to do it.

10:06They wouldn't have the capital to do it. It's fascinating to me, though, that now Toys R Us, for a lot of young kids who have only really seen toys, I don't know, online or, you know, in commercials and that kind of thing, Now we're talking about Toys R Us back in action and in a more sort of brick-and-mortar-esque retail space. Have we come full circle? I don't know if they're ever going to get to having as much brick-and-mortar as they used to have. I think the brick-and-mortar is always going to be secondary, and the toy manufacturers know it too. They're even looking at ways to just sell directly to their own consumer.

10:47You know, Hasbro has its own website. Mattel has its own website. They're looking at, you know, selling toys on TikTok. Somebody can just link directly on TikTok and buy their Hasbro toy or their Nerf toy. I'm being overly optimistic. I'm being sentimental and romantic about this. I want this to come back, I guess. That's what's happening. Yeah, well, it's nobody, like Toys R Us tried to figure out a way, if we make our toy stores like experiences, and the kids can play with the games and they can climb on a treehouse or ride on a slide, that, you know, every parents will come and spend their time there, like that old days when you talked about piling the kids in the car and going to Toys R Us, and then they'll buy things.

11:28But the problem is that they either came up with a model that people love to come in and play in, but they didn't buy anything. They would go home and look for the toy online and see if they could get a better price, or they would just not come. Yeah. I guess it would work better in a place where the experience of going there is bigger than the store itself, right? Obviously, Times Square. when you're going to a Macy's in Herald Square. Get it. And when you're out in, you know, some smaller city or something, you actually have to get in the car and go out. And, you know, it becomes a very deliberate act that maybe a lot of folks feel like they don't have time for now.

12:07I think they have time for it. But the thing is, does it translate into shopping and spending money there? And, you know, one interesting thing, when Toys R Us opened their first flagship at American Dream Mall in East Rutherford, New Jersey. There were kids lined up to go in and tour it. And one of the owners of American Dream Mall, when he gave sort of the welcoming speech, he was saying, I'm actually kind of mad because we have a multimillion-dollar amusement park in this mall. We have a water park that we spent millions on. We have a ski slope. And my preteen kids just arrived here. They don't want to do any of that stuff.

12:44They want to go to the Toys R Us store. So he was sort of joking that, you know, Like maybe we didn't need to build all those things. Maybe we could have just built a good toy store. Where does this leave some of the boutique toy stores and the smaller mom and pop shops? I noticed that after Toys R Us left our town, I started to see some of these smaller stores pop up. And a lot of them offered, you know, sort of quirky toys, imported toys, things from Japan and that sort of thing. Where do those smaller toy stores fit into the overall toy landscape, do you think? I think they've always had a place.

13:20They were around before there was a Toys R Us. The good ones survived Toys R Us, and they can still survive now. That's the type of place where you want to walk in and say, I have a six-year-old grandson, and he's really into trucks, or he's really into building, or I don't know what he's into. Help me. And, you know, the goods stores, and I've been in a lot of them like that, that instantly the owner will show you like six toys and you end up buying all of them because you can't believe how good all of her suggestions are. You know, and the ones that are very savvy, they do a lot of events that bring in the families and the kids, you know, craft events, you know, special appearances, maybe one of their, you know, a favorite kid's author or something like that, you know, Play-Doh Day.

14:08They're really engaging with the customers, it sounds like. Right, exactly. And they also were smart and did their own, you know, online sites. And, you know, the small businesses who are good merchants and are creative, I think, will always be able to survive because there is a lot of love in the community. And a lot of that, when you see the new stores opening up, it's kind of cyclical because now the millennials are having children. So there's a new population of young kids out there that the parents are taking to those small stores. So those small stores are doing well now. Are there other trends you see with how parents are, for instance, buying their kids holiday toys?

14:45I miss the Sears Roebuck catalog. I'll just say it right now. I miss the wish book so much. It's here, the new Sears wish book. And oh, what a wish book. Over 600 pages, some with gifts your family's never gotten before. Right, exactly. But is there anything else that's kind of like that you're seeing as sort of a trend develop that could have that kind of lasting power? That's hard to say. Everybody's trying to become the new wishbook. And Toys R Us is trying to slowly put out like their Toys R Us wishbook. And I think, yes, last year it was just a couple of pages. Maybe it'll be a little bigger this year.

15:24You know, and there's different websites that, you know, where companies promote toys. But mostly now it's individual manufacturers trying to promote their own toys. There's no retailer pulling it all together. And I don't know if parents like take their kids walking through Target or Walmart to look for toys that they might be interested in. But there really is no place like that wish book that you can go to. And what I'm seeing a lot, which shocks me a little bit, is how much kids learn about toys from watching YouTube and social media. And I have an eight-year-old nephew who his favorite thing to watch on TV is people demonstrating toys.

16:06And they're usually like older guys, like in their forties saying, hey, let's check out this new Dino Raptor. And look, it lights up and its tail moves. And my husband thinks it's the creepiest thing he's ever seen because they're talking about it like they're an eight-year-old kid, like, you got to get this Dino Raptor. And my nephew He could watch it for hours, and that drives what he wants to buy. But back when I first started covering the toy industry, the one thing you'd hear toy executives talk about is sort of the cool kid factor. Like if the cool kid in school pulls out a pack of Pokemon cards at recess and everybody else is like, wow, what's that?

16:49And suddenly every other kid in the school is going to go home and say, I've got to get Pokemon cards. or if a girl pulls out a Beanie Baby and everybody wants it. And so that's what the toy companies always talked about. And they've sort of decided that now they find the cool kid through TikTok or YouTube. It's like influencer culture almost, isn't it? Right, exactly. Well, now, since we're talking about toys, we've got to have a little fun. I can't let you go without asking if you had a favorite toy growing up. You know, they weren't really brand name toys. I guess I'm like from the generation of the Magic 8-Ball.

17:26Oh, yeah, sure. It was a very popular toy of my 14 years. So I still think about that a lot. But like one toy memory I have is a bizarre toy memory. My father worked as a lawyer, and some lawyers that he worked with would always give over-the-top presents to my family. We had four girls, four little girls in my family as I was growing up. And one year they sent us this giant, it was like a chariot with like two giant large stuffed horses and a little cart, you know, big enough for a kid to sit into from FAO Schwartz. But that was like an example of something that was only sold at FAO Schwartz.

18:09And that was like considered a wow luxury toy at the time. That's what we found on Christmas when we came down from. Oh, my gosh. What a... From Uncle Pete and Uncle Joe. Whatever happened to the chariot, Joan? I'm sure it, you know, we probably had it for many, many years in my parents' garage or basement, but it no longer exists. Well, I have a favorite toy, but I'm going to hold off because in just a few minutes we're going to be exploring it in depth. But we've had so much fun talking with journalist Joan Verdon. She's covered the toy industry for 25 years, and today she's senior contributor for Forbes.com.

18:47We've got to take a quick break, but start your engines, because when we come back, we're talking all about one of my favorite toys. It's on four wheels. Stay with us.

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20:29Hey, welcome back to Business Wars. I'm David Brown. You know, kids aren't the only ones who get to play with toys. By day, Bruce Paschal is a commercial real estate agent based in the D.C. area, but he has a not-so-secret hobby, building out the world's most valuable and complete collection of Hot Wheels through the ages. He recently turned his collection into a museum, and he joins us now to talk about it. Bruce, welcome to Business Wars. Good morning, David. How are you? I'm thrilled, is how I am. I have to tell you, by now a lot of listeners know that Hot Wheels were my favorite toy growing up.

21:06And I'm being kind because actually I never really grew up. I'm still collecting Hot Wheels, you know. And it sounds a bit like someone else here in this conversation. How many pieces do you have? I mean, we'll just start with the pieces. So I imagine I have about 10 ,000 pieces, which certainly doesn't make it the largest collection in the world by any stretch. But the pieces include original artwork designed by the Hot Wheels designers in 1967 and 68 and 69, includes the wood models that were hand carved as part of the process to make Hot Wheels, blueprints, notes from the factory. You know, you name it.

21:46I love the history of what I consider the world's greatest toy. And that's my passion. What inspired you to turn your personal collection into a museum? Was there like this aha moment made you realize, hey, I got to share this with the world? It's called the wife. She was sick and tired of what she calls. She has a name for Hot Wheel collectors, strange people. And she said to me one day, I'm sick and tired of all these strange people coming to our house to look at your collection. Go out and find a small place. Now, the good news is she never defined the word small. So I actually searched for a long time to find a small warehouse.

22:23and if you google hot wheel collections and see pictures they all tend to look like a supermarket with like cereals on top of sugars on top of cookies you know yeah right right and i had visited the louvre and have you ever seen the mona lisa in the room all by itself yes i have actually yeah is that pretty powerful it's extremely powerful when the crowds aren't there right 100 even with the crowds there it's powerful to say it is this item is displayed all by itself in a room. So I decided to create three art galleries in my warehouse. I already had the drywall up and I decided to space out the paintings, not quite like the Louvre, but like a museum.

23:02So you walk through and you get to see all this different original artwork. And then I also spaced out in the, uh, in the warehouse section where I have 20 foot ceilings, goes back over a hundred feet. I put some car racks in the back to hold some real cars. The rest of it, it looks like a museum and I wanted it to look like a museum. Most of my collection is not visible by somebody walking through the actual place. It's put away in storage or in racks that I have to actually open the doors or open a safe to show you, you know, different items. Wow. So can anyone visit? Yes. They just have to call me or email me in a range of time.

23:41About six times a year, I open it up for kids. I have a concrete floor. And let me just tell you, for two or three hours, they're going crazy. I have a box of what we call Junkers. David, I'm sure you know what they are, the beat-up cars. Oh, yeah. Yeah. And kids get to play with them. And I always say, take as many. And any kid who shows up leaves with the real new Hot Wheels in the package. That is so cool. I think when I got my first Hot Wheel, I got most of the Sweet 16, which were the first editions that came out around 68, I guess it was. It was that Christmas that I got my first Hot Wheels.

24:15And when I would go to Sears later on, you know, you didn't get a whole lot of pushback from your parents because I think they were about a dollar then. Slightly less. Slightly less. Yep. What, 79 cents, something like that? As low as 69 cents in 1968. And you can still get one today for a dollar. One of the most miracles of business of all time. That's the thing. I seldom walk out of a grocery store or something without one or two. I mean, at least. I'm ashamed to admit. Yes, exactly. But this is kind of crucial to the success of Hot Wheels, that they've been able to make high-quality die-cast toy cars for all of these decades.

24:57And the price has never really been that much. Now, they make some really fancy collector's editions and that kind of thing that can be$5,$10, sometimes more, you know. But the mainline series has never really gone up in price. How have they managed that? You know, it's a miracle. Obviously, the original cars had movable parts, stamping process on the wheels. The actual paint process for Hot Wheels in 1968 is the same way you paint a real car, electrostatic paint. So they had all these processes in 1968. And if you buy one today, it's less metal, more plastic, the wheels and everything is made, you know, computer designed.