The soon-to-be liquidated toy retailer had been an e-commerce leader; its online sales reached almost $1.7 billion in 2017.

Who is going to sell all the toys online that Toys R Us Inc. won’t be selling anymore?

Analysts will continue to debate what ultimately led to the bankruptcy of Toys R Us and the liquidation of its U.S. operations. What’s undeniable is that its demise eliminates a company in the top tier of e-commerce and among the largest retailers in the country.

Putting a Toys R Us-sized chunk of the e-commerce toy market up for grabs represents a big opportunity for online competitors of Toys R Us—including smaller, niche retailers and other giants, such as Amazon.com Inc. (No. 1 in the Internet Retailer 2017 Top 1000), Walmart Inc. (No. 3) and Target Corp. (No. 20). Here’s a look at what the liquidation of Toys R Us means to the online toy business.

The state of online toy sales

Despite years of decline, Toys R Us is a giant—both in e-commerce and retail in general. Toys R Us ranks No. 38 in the Internet Retailer 2017 Top 1000, with estimated online sales of nearly $1.7 billion in 2017.

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Among the toy and hobby merchants in the Top 1000, Toys R Us is the largest, slightly edging out GameStop Corp. (No. 42). By itself, Toys R Us represented about 37% of the $4.6 billion total online sales for the 19 toy and hobby retailers ranked in the Top 1000.

Toys R Us also has been increasing its online sales by double digits over the past three years.

According to data from IBISWorld, Toys R Us had a respectable 13.6% market share of overall U.S. toy sales (online and offline) in 2016, and it is still among the largest toy retailers—and the biggest retailer of any kind—in the country. The toy retailer also ranked No. 62 on the National Retail Federation’s 2017 ranking of the top 100 retailers in the United States.

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In 2017, cumulative online sales for the 19 toy and hobby retailers ranked in the Top 1000 represented 23.9% of the total (online and offline) sales for those companies, according to Internet Retailer data. In 2012, online sales for Top 1000 retailers in the toy and hobby category totaled 14.7% of their overall sales.

However, the toy category is dominated by mass-merchant retailers. In 2016, the 13.6% market share held by Toys R Us was less than half of Walmart’s 29.4% share of overall, both offline and online, toys sales, according to IBISWorld. That same year, Amazon’s market share in toys was 16.3%. GameStop had a market share of 13.9%, just ahead of Toys R Us.

Ben Row, a retail specialist at online sales software provider Bigtincan, says that, with more sales moving online, the importance of providing a good e-commerce experience is incredibly important. But Toys R Us chose instead to continue to emphasize low prices, Row says, and that was not a game it could win.

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“Toys R Us made a choice as the e-commerce market was heating up in the early 2000s to double down on price over value,” Row says. “By choosing to focus on price, Toys R Us was entering into a losing battle—they were never going to win a price war against Amazon and the big-box stores like Walmart and Target.”

Row says Toys R Us stuck with its price-oriented strategy, even while its competitors were becoming better at providing a satisfying omnichannel shopping experience, which was a mistake. “When you race to the bottom, you eventually reach the bottom,” he says. Row expects Amazon to gain a lot of the online sales Toys R Us might otherwise have made.

An analysis by digital measurement firm comScore Inc. indicates Row is probably right.

According to comScore, Amazon is already a major player in toys, especially during the vital holiday season. In the fourth quarter of 2017, Amazon commanded an astounding 81% of online transactions in the toys and hobbies category, up from 77% in the fourth quarter of 2016.

The e-commerce giant also dominated the video game consoles and accessories sales online, with 67% of transactions in Q4 2017, and garnered 69% of online video game transactions. In Q4 2016, those numbers were 63% and 62%, respectively, according to comScore.

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Looking forward

Mark Carson, president and co-founder of Fat Brain Toys LLC—a toy manufacturer that sells through other retailers, but also sells directly to consumers online and in its own stores—says Toys R Us was “a small account” for Fat Brain Toys (No. 540), but its loss has a big impact on how toys are sold in the future.

“There’s no question this is going to send shockwaves throughout the industry,” Carson says. He expects the fallout to take three forms.

First, Carson says, the demise of the last national toy retail chain will help accelerate the move to online sales, as consumers seek out the toys they might not find in stores that don’t specialize in toys, such as mass merchants.

Second, Carson says he sees a lot of opportunity for smaller, specialty retailers like Fat Brain Toys, which are good at guiding customers to toys that are age-appropriate and are a fit with the interests of the children they are shopping for. That’s something, he says, that Amazon and other big, mass-merchant retailers don’t do very well.

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Lastly, Carson says he expects big-box retailers like Target and Walmart to react by putting a bigger emphasis on toys. But he expects them to be slow to take full advantage of the liquidation of Toys R Us. This holiday season, Carson expects those retailers to focus on “the hottest of the hot toys,” rather than radically expanding their toy selections.

Bigtincan’s Row says the future will belong to the retailers who provide the most satisfying shopping experiences, both online and in stores. When it comes to winning online, Row says nothing beats native apps for creating an easy, intuitive shopping experience that represents a retailer’s brand in the way it wants to be represented.

“They are not going to win this battle with a website,” Row says, referring to major retailers that sell online. “They are going to win it with an app.”

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