Boomerang Insights 2016 Toys Report

BOOMERANG
INSIGHTS:
2016
TOYS REPORT

1. Amazon is still by far the leading retailer with over ﬁve million items in their Toys & Games
category alone (vs. <100,000 for other retailers), and a pricing strategy that optimizes based on
data signals.
2. However, Walmart and Jet.com are taking steps to challenge Amazon with Walmart becoming
increasingly more competitive in assortment (66% overlap with a basket of Amazon’s most
popular items, ~1.8x the nearest competitor) and Jet focusing on pricing (based on a random
selection, 46% of the most popular products are offered at a price below Amazon’s).
3. Target’s assortment has not shifted much year-over-year, and its overall price perception has
deteriorated relative to Amazon (58% of popular matched items were more expensive);
however, the retailer is seeking to win customers through promotions (e.g., Holiday promotions
from November 2 - 5, 2016 including 20% off of select toys; buy 2, get 1 free games).
4. After Walmart, Toys“R”Us has the highest assortment overlap with the basket of Amazon’s
popular items (40%), an improvement over last year (35%). This increase in products available
mirrors the retailer’s broader strategy of ﬁlling shelves with more products.
5. Retailers like Walmart that embrace innovation and invest in their technological capabilities are
better positioned to keep up with Amazon. The acquisition of Jet.com further empowers
Walmart as it continues to incorporate technology to enable data-driven decisions, including its
plans to adopt Jet’s ‘smart basket’ pricing technology. This ultimately enables Walmart to
attract new customers, particularly the millennial segment.
Source:
1. Wall Street Journal, Dec 15, 2015: Struggling Toys ‘R’ Us Tries Fuller Stores
2. Wall Street Journal, Nov 1, 2016: Wal-Mart E-commerce Executives Depart in Wake of Jet.com Purchase
PAGE 1
Boomerang Insights: 2016 Toys Category
insights@boomerangcommerce.com
TOP 5 FINDINGS
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In this 2016 edition of the toys category report, Boomerang has used data from Amazon, Walmart, Jet,
Target, Toys“R”Us and GameStop. The timing of this report is significant given the seasonality of the toys
category. Consistent with 2015’s findings, Jet competes most closely on price with Amazon, given its
mission around ‘We’re all about saving you more money’, while Walmart is even more competitive with
Amazon in terms of overall toys assortment.
The objective of this report is to provide insights into the competitive landscape in the toys category.
Amazon was used as a proxy for a best-in-class retailer given the size of its assortment, and its flexibility in
deploying competitive strategies. We have assumed that for each category on Amazon (e.g., toys,
electronics, home and garden), the top 20% of products are head items, the middle 50% are core items,
and the remaining 30% are tail items.
The analysis incorporates 1,800 items across the full range of product popularity, with 600 items randomly
selected from each tier. The data used was compiled during October 2016.
Proprietary measurements and indices have been developed to track price and assortment. The Price
Perception Index (PPI) tracks price competitiveness, and is normalized to Amazon to establish a relative
baseline. It is weighted to accurately reflect the popularity of products across the retailers and basket of
items. The Product Assortment Index (PAI) reflects the selection of products across these retailers. It is
normalized to Amazon to establish a relative baseline, and is also weighted to accurately reflect the
popularity of products across the retailers and basket of items.
• Head items are frequently purchased, popular best selling products that strongly influence
customer perception of whether a retailer is expensive or inexpensive.
• Core products are of medium popularity.
• Tail products are purchased infrequently and have the least impact on a customer’s perception.
• For a consumer that may be agnostic across the set of competing retailers when shopping for
specific items, Amazon’s pricing strategy ensures that it remains attractive by offering competitive
prices on the most popular items, discounting 32% of head items; however, for the least popular
products, Amazon’s optimizing strategy involves not offering list price discounts, and thereby
maximizing margins on these.
• Across this set of six competitors, Jet and Walmart are most aggressive in offering the number of
discounts to consumers.
• Moreover, from an assortment perspective, Walmart continues to be the most competitive after
Amazon, which mirrors findings from last year.
I. EXECUTIVE SUMMARY
II. METHODOLOGY
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Across the 1,800 items analyzed, based on Boomerang’s Product Assortment Index, which has Amazon
rebased at 100 and incorporates weighting to incorporate product popularity, Walmart has the
greatest overlap with Amazon with an index of 54.5 (+14.3 points YoY), followed by Toys“R”Us at 31.0
(+2.4 points YoY).
Boomerang’s Product Assortment Index (PAI)
Assortment overlap
Building on top of their 107% growth in global e-commerce sales over the past four years, Walmart’s
commitment to the digital experience is reﬂected in their strong positioning in the set of retailers
analyzed.
As more retailers develop their marketplace
capabilities, they become more competitive
against Amazon. Although currently operating
separately, Walmart’s acquisition of Jet.com
would see it building on its e-commerce
foundation by leveraging off Jet’s innovation
around the way customers shop.
• Across the three tiers, Walmart has the highest overlap with Amazon’s products at 66% head
items, 29% core items, and 19% tail items.
• From Q1 to Q3 this year, Walmart has more than doubled its online assortment.
• By providing improved merchandise choices for customers, where 75% of items sold come from
non-store inventory, Walmart can better serve their channel-agnostic customers.
• This indicates that Walmart is betting heavily on the toys
category with this dramatic increase.
• Last year, Walmart similarly had the highest index amongst
Amazon’s competitors, followed by Toys“R”Us.
• However, this year, Jet has signiﬁcantly improved on its
assortment through its marketplace offering, and has
surpassed Target with an index of 29.5 (+3.4 points YoY).
• GameStop in this analysis, similar to last year’s report, has the
lowest index at 14.8 (+0.1 points YoY), which is likely due to
their focus on the video games segment.
Source:
1. Walmart Annual Report 2016
2. Walmart Annual Report 2015
Retailer PAI
Amazon 100.0
Walmart 54.5
Target 27.5
Jet 29.5
Toys“R”Us 31.0
GameStop 14.8
III. ASSORTMENT ANALYSIS
This chart shows that all retailers improved from
their 2015’s assortment overlap on head items.
2015/2016 Assortment Overlap of Head Items
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2016 Assortment Overlap Relative to Amazon
• For these products that can strongly
influence a customer’s perception of the
retailer, Walmart’s overlap with Amazon is
~1.8x greater than the nearest competitors,
with Toys“R”Us at 40% and Target at 37%.
• GameStop specializes in gaming, and has a
strong assortment overlap with Amazon in
the video games sub-category, carrying
84% of popular items.
This year, in our basket of Amazon’s most popular items, the top brands represented were VTech, Melissa
& Doug and Microsoft, which were also featured within the top five most popular brands in last year’s
analysis. This can be considered alongside Amazon’s number of items for these brands within the Toys &
Games category. For example, although there are only ~6,487 items under the Melissa & Doug brand, a
number of these products are featured highly on Amazon’s best sellers list for the category. In last year’s
report, Melissa & Doug products were largely unavailable at Walmart; however, this year, Walmart is
carrying all 36 Melissa & Doug head items in our analysis, which shows Walmart’s commitment to a
superior selection for customers by ensuring high coverage of popular brands and items.
The top ten brands as shown below are generally well-represented across the four retailers excluding
GameStop. Specializing in video gaming, GameStop carries all the head products for the brands 2K Games
and Electronic Arts. Given the seasonality in the toys category, which can be influenced by the popularity
of recent movies, Star Wars-branded items were notably featured in the head tier following the popular
December 2015 movie, Episode VII – The Force Awakens.
Brand representation
Note: Amazon has more than 5 million items in its ‘Toys & Games’ category. As this analysis includes 1,800 SKUs of varying popularity, not all of
Amazon’s sub-categories are represented.
# head items
Brands Amazon Walmart Target Jet Toys“R”Us GameStop
VTech 38 76% 47% 21% 39% 0%
Melissa & Doug 36 100% 56% 53% 67% 0%
Microsoft 23 96% 74% 52% 43% 78%
FunKo 18 94% 56% 89% 56% 78%
LeapFrog Enterprises 14 93% 79% 57% 93% 0%
Star Wars 14 100% 86% 21% 93% 14%
Sony 13 100% 85% 92% 92% 92%
Nintendo 11 91% 73% 18% 82% 64%
2K Games 10 100% 100% 60% 90% 100%
Electronic Arts 10 90% 90% 50% 90% 100%
% of these Amazon head items available at retailer
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For the analysis in the Toys & Games category, Jet was the only retailer that had a lower Price
Perception Index (PPI) than Amazon, at 90.1. The PPI factors in product popularity, such that the price
competitiveness of more popular items are given more weight than the price competitiveness of less
popular items.
Pricing Analysis
The scatter plot maps 2015’s PPI against
2016’s PPI, with the size of the bubbles
reflecting the latest Product Assortment Index.
The retailers below the reference line, Jet and
Toys“R”Us, saw an improvement in their PPI
this year (more value for consumers), whereas
those retailers above the reference line saw
an increase in their index (less competitive).
Toys“R”Us’ improvement is an indication that it
is trying to influence the market’s perception,
which is in turn beneficial for toy
manufacturers who otherwise would be at the
mercy of lower price mass merchants like
Amazon and Walmart.
Head items drive price perception the most,
and Jet, with the lowest PPI, has 46% of its
head items offered at a price that is below
Amazon’s. Walmart, with the highest PPI of
111.2, has only 20% of its head products priced
below Amazon’s.
Independent of product assortment, Walmart and Target
have the highest index of 111, which indicates that for items
that customers are seeking out most, these two retailers
are perceived to be fairly more expensive than Amazon in
their customers’ minds.
1. Source: Bloomberg, Sept 19, 2016, Saving the Big Box: Inside the Plan to Revive Toys ‘R’ Us
Note: Figures in brackets represent total number of head items
2015/2016 Price Perception and Assortment
Head Items - Pricing Relative to Amazon
IV. PRICING ANALYSIS
Retailer PPI
Amazon 100.0
Walmart 111.2
Target 111.1
Jet 90.1
Toys“R”Us 106.4
GameStop 103.3
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When merchandising decisions are made without data, retailers can hurt their bottom line, and further
erode their brand-perception as consumers grow even more accustomed to bargains. Discounting head
items may be a beneﬁcial strategy as these products often shape a consumer’s perception of the retailer.
Correspondingly, maintaining a higher offer price for tail items will not markedly affect a consumer’s
perception, and can help strengthen margins.
Discounting Analysis
Walmart and Jet have the largest proportion of their products discounted across the three tiers: head, core,
tail of 54%, 51%, 39% for Walmart, and 47%, 48%, 47% for Jet. This indicates that there is money left on the
table, as margins for these tail products can be strengthened. For the most popular and inﬂuential
products, the median discounts offered were found to be in a reasonable range across the retailers, from
19% at Walmart to 25% at Amazon and Target.
• As shown in the below charts, Amazon is the only retailer that employs a strategy consistent with
this: across head, core, tail products, the proportion of products discounted is at 32%, 9% and 1%.
• This ensures that 1) the popular products are priced most competitively, which drives a consumer’s
perception of the retailer, and 2) margins are maximized by keeping the least popular products at
list price, refraining from damaging consumer perception given their low popularity.
• Furthermore, tail products that are shipped and sold by Amazon demonstrate that Amazon is
optimizing the tail given that only two of 49 products are discounted. Amazon, across the three
tiers, is discounting less proportionally compared to other retailers, and when doing so, Amazon
selects the products that would most likely drive better perception in the customer’s mind.
Percentage and Number of Items Discounted Median Discount Offered Across Tiers
Note: Figures in brackets represent the total number of items discounted
The set of retailers analyzed do not consistently show a separate ‘list’ price across products. This trend has been noted in the media
(e.g., New York Times, July 3, 2016: Amazon Is Quietly Eliminating List Prices), and may be driven by various factors (e.g., marketing
concept leading to fake-discount lawsuits, MSRP inconsistency across retailers). For the purpose of this analysis and for consistency,
where a separate list price was not provided, and the item was not sold by a third party on Amazon, the list price on Amazon has been
used across the set of retailers to assess the extent of discounting.
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To learn more about the report analysis, email insights@boomerangcommerce.com
This report adopts a broad perspective and analyzes a cross-section of products with varying degrees
of popularity. This year’s analysis continues to show Walmart’s accelerated growth in e-commerce.
To attract customers beyond managing pricing and assortment, retailers have introduced promotions
and other initiatives to improve the customer experience two months out from Christmas. In addition to
the dynamic best sellers lists published on Amazon, for the holiday season, the Amazon ‘Holiday Toy
List’ was posted at the end of October to further streamline the buying experience. In this competitive
environment, we have seen strong results from retailers with a commitment to digital and e-commerce.
These retailers ensure that their price perception aligns with their target customers, and that their wide
assortment continues to deliver superior customer experiences. Companies that are nimble will
continue to grow their loyal customer base, incorporating internal and external data signals into their
decision-making around pricing and assortment to deliver better experiences.
• We expect to see a stronger business overtime as Walmart builds on its foundations by
incorporating Jet.com’s technology and innovative spirit.
• In this analysis, among the mass merchants, Jet’s pricing was the most competitive, consistent
with last year’s position.
• Although the specialty retailers in this category struggle to compete on price, their wide
assortment within speciﬁc sub-categories (e.g., video games) and exclusive products (e.g., items
only available at Toys“R”Us) keep these retailers relevant.
V. CONCLUSION
PAGE 7

Boomerang Insights 2016 Toys Report

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