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Toys ‘R’ Us Antes Up in Kid-Tablet Battle With New Tabeo

September 10, 2013

Toys ’R’ Us Antes Up in Kid-Tablet Race With New Tabeo Device

Toys “R” Us Inc., owned by Bain Capital LLC, KKR & Co. and Vornado Realty Trust, is maintaining a presence in a kid-oriented tablet market that’s becoming increasingly crowded. Photographer: Jin Lee/Bloomberg

Toys “R” Us Inc., the struggling retailer, is making a bigger bet on kid-focused tablets as Amazon.com Inc. (AMZN:US) and Samsung Electronics Co. target families.

The world’s largest toy chain will release the second version of its tabeo tablet early next month, Richard Barry, the retailer’s chief marketing officer, said in an interview. The first edition, built on Google Inc.’s Android operating system, sold out last year, so the company has boosted production and marketing for the tabeo e2, he said, while declining to give specific sales figures.

Toys “R” Us, owned by Bain Capital LLC, KKR & Co. and Vornado Realty Trust, is maintaining a presence in a kid-oriented tablet market that’s becoming increasingly crowded. LeapFrog Enterprises Inc. (LF:US) and VTech Holdings Ltd. (303) have upgraded their devices with features such as Web browsing while Amazon has focused marketing its Kindle Fire to parents. Samsung also recently announced a child-centric version of its Galaxy Tab 3.

“There’s a new marketplace here with kids wanting a specific device,” Barry said. “We believe we’re going to be at the forefront of that trend.”

While sales of children’s tablets account for a small part of the industry, which includes Apple Inc.’s top-selling iPad, there may be plenty of room to expand the niche as families buy more than one tablet, according to researcher IDC. Industrywide U.S. tablet shipments are expected to increase 34 percent to 67 million units this year.

Sluggish Sales

Toys “R” Us, based in Wayne, New Jersey, is investing in the tabeo amid sluggish toy sales in the U.S. Revenue at the company has declined (TOYS:US) for seven straight quarters. A sales drop during last year’s holiday-shopping season led to the resignation of Chief Executive Officer Jerry Storch, who hasn’t been replaced. The chain withdrew its plan for an initial public offering in March.

One of the main culprits for the company’s struggles happens to be the success of tablets. The devices have pulled sales away from video-game consoles and hurt purchases of traditional toys as kids as young as three spend more time on them.

“It’s very important that we are selling products that are relevant to kids,” Barry said. “We believe we are the toy and kids authority. Whatever kids are buying, whether its physical toys or digital content, we need to be a player.”

Digital Challenge

The chain’s predicament is similar to that of Barnes & Noble (BKS:US) Inc. The main products at both big-box specialty retailers are being challenged by digital content and mobile devices. Unlike Barnes & Noble, which only sells its Nook brand of tablets, Toys “R” Us offers Kindles and a slew of other devices alongside its tabeo.

That competition will only increase this holiday-shopping season as Toys “R” Us adds more devices to its assortment and upgrades the tablet departments in its stores. Shoppers will be able to test about 30 different devices including the tabeo, which will sell for $150. That doesn’t include LeapFrog and VTech products, which are sold in their own branded areas. Last year, a few tablets were displayed that ran static content and couldn’t be tapped and prodded by customers, Barry said.

“We want to ensure we are the place for kids and family-oriented tablets,” Barry said.

The new tabeo will hold its own while competing against similarly priced Android-based devices, Barry said. It has a larger 8-inch screen -- compared to last year’s 7-inch -- a faster processor, more parental controls and Bluetooth capabilities for connecting to add-ons such as wireless speakers. The devices also comes with applications, such as Fruit Ninja, that would normally cost money.

Another reason Toys “R” Us is sticking with the tabeo is the opportunity to sell content. Last year, it started a video-distribution service that allows users to download or stream movies from the Web or through a mobile app. The devices’ app store has also been curated to only show kid-specific choices.

Bain, KKR and Vornado bought the toy retailer in a deal valued at $6.6 billion in 2005.

To contact the reporter on this story: Matt Townsend in New York at mtownsend9@bloomberg.net

To contact the editor responsible for this story: Robin Ajello at rajello@bloomberg.net


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Companies Mentioned

  • AMZN
    (Amazon.com Inc)
    • $324.5 USD
    • -6.82
    • -2.1%
  • LF
    (LeapFrog Enterprises Inc)
    • $6.22 USD
    • 0.03
    • 0.48%
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