The combined sales from Wal-Mart and Toys 'R Us account for a smaller percentage than these other distribution channels.
Another alternative may be to establish their own category killer store to replace Toys 'R Us. However, this is a risky move and is capital intensive. They would have to make certain that the market would be willing to accept this alternative. This alternative would require a heavy capital outlay and carries the greatest amount of risk. However, it may be a more cost effective alternative in the continuation of marketing research and product development. The costs and benefits of this alternative would have to be weighed against the risk.
In addition to expanding existing distribution channels other than Wal-Mart, toy manufacturers may wish to develop other distribution channels as well. For instance, they may wish to attempt to entice other retail establishments such as K-Mart, increase holdings in Target, Meijers or other similar mass merchandisers. This move is likely to receive a poor reception from Wal-Mart, as it will decrease their hold on the marketshare. However, it also represents better risk management as it distributes the losses over a greater number of players.
Of these alternatives, the best seems to be to increase current alternative distribution channels other than Wal-Mart, particularly with new products. This will entice customers to try out these new venues. Wal-Mart represents a major marketshare, but they are still small compared to other distribution channels. Diversity spreads the risk over a large area so that if a loss does occur, it is minimized in scope. It would cost little to establish other smaller distribution channels as compared to the cost of building and establishing their own retail establishment. New channels often cost more than increasing the use of established ones.
Many analysts assume that customers will automatically switch to Wal-Mart with the dissolution of Toys 'R Us. This would increase Wal-Mart's marketshare of the toy industry even further. However, there is also the possibility that customers will migrate to distribution channels other than Wal-Mart. This would mean greater competition and could result in price wars among distributors. This would theoretically increase demand for the products. This is good for the distributors, but bad for the retailer. Increased competition would mean the need to lower prices, which would have the aggregate effect of decreasing profit margins for distributors.
One must remember that we are talking about the same products, only the distribution channel would change. The manufacturer still gets the same wholesale price, the retailer is the one who takes the hit in this case. The customers are the ones that have the most to gain. They would benefit from lower prices and a wider array of purchase points. They would be more likely to pick up items other than toys. More distribution channels mean greater convenience and lower prices for the customer.
This would be just cure for Wal-Mart's price-busting strategy. Wal-Mart gained its position through the ability to under price the competition (Freeman, 2003). The toy market is only one of the most recent victims of the Wal-Mart phenomenon. Wal-Mart has already used similar moves to undercut the food industry, clothing industry, with many more on its slate for slaughter (Freeman, 2003).
In conclusion, from the standpoint of the toy manufacturer they have already seen what Wal-Mart has done to other industries (Salter, 2004). Instead of catering to the destructor and be forced to vacate to third world countries in order to maintain profitability, perhaps toy manufacturers should break stride and develop other markets. Toy manufacturers need to consider the overall picture and not risk 66% of their marketshare for the sake of their biggest distributor. This strategy is consistent with the old adage, "Don't put your eggs in one basket." Utilizing other distribution channels makes good risk management sense.
Brown, Eryn (2004, Sep. 12) "
Imagining Toyland Without One of Its Giants," New York Times, pg. 3, 5.
Freeman, R. (2003). Wal-Mart 'Eats' More U.S. Manufacturers. November 28, 2003. Executive Intelligence Review.
Pride, W. And Ferrell, O. (2003). Marketing. Twelfth Edition. Houghton Mifflin Publishers.