Rotomolders prepare themselves for a hit from Toys R Us closing

In case you haven't heard, there's big trouble in Toyland, and a chunk of Ohio lies within its mythical borders.

Hundreds of workers mold big plastic toys and kids play equipment at Little Tikes Co. in Hudson and at Step2 Discovery LLC and Simplay3 in Streetsboro — and they all just lost a major sales channel.

It's too soon to say what the effect will be, but those companies are all dealing with the loss of Toys R Us and its $11 billion in annual overall toy sales. The iconic retailer announced in March it is closing all 800 of its stores around the country this year.

It was such a blow to the plastic toymakers that Isaac Larian, the founder of and CEO of Little Tikes' parent, MGA Entertainment, attempted to save at least part of the chain by purchasing several hundred of the stores. Unable to reach a deal with Toys R Us' creditors, the California businessman abandoned that effort on May 18.

"We have officially withdrawn our bid to save Toys R Us, as we were unable to reach a fair agreement with the current lenders, who I believe did not provide a fair valuation of the remaining U.S. assets," Larian said in an email to Crain's. "Saving the retailer was always going to be a challenge but one that I was up for — both personally and professionally. As the maker of the No. 1 selling toy in the country, L.O.L. Surprise, Toys R Us has played a large part in growing our business and their absence will be felt by the toy industry at large. Moreover, I am most disheartened that the legacy of the retailer will be lost for future generations."

But that was all MGA Entertainment, maker of the popular L.O.L. Surprise dolls, which are both made from plastic and packaged in film and rigid containers as part of their sales gimmick, would say, and questions about its future and its plans for northeast Ohio went unanswered.

There's little doubt that Little Tikes, along with the other toymakers, will feel the effect, though. Just ask the man who put northeast Ohio on the Toyland map — Tom Murdough, who played a big role in all three toy rotational molders, and who still runs Simplay3 after starting it in 2016.

"There is no denying that the loss of Toys R Us is devastating to the entire industry," Murdough said in email correspondence. "There is and will continue to be a definite slow-down in the pipeline without a mass merchant like TRU. Without them, all toy retailers are now challenged to find alternative channels."

Simplay3 might be the least affected of the three local companies, he said, in part because it's so young and because it launched as a direct-to-consumer seller.

"Therefore, with minimal shipments to TRU, the negative impact to Simplay3 has probably been much less than most other toy companies," Murdough said.

Simplay3, also because of its youth, likely would have the least effect on northeast Ohio's economy, since it employs fewer people in the area, around 40, the company reported.

Step2 is the second largest rotational molder in North American according to the most recent Plastics News ranking, with $183.3 million in annual sales. Little Tikes comes in at No. 4 with an estimated $160 million in North American sales. As a new player, Simplay3 was ranked at No. 121.

Little Tikes has an estimated 800 employees and Step2 had about 750 in the most recent PN rankings.

So far, neither company has announced layoffs, and economic development officials in Hudson and Streetsboro said they had not been informed of any layoffs. They referred questions to the companies themselves when asked about any potential impact locally.

Any such impact could go beyond direct employees, too. The companies have local supply chains that also rely on their sales, Murdough pointed out.

"The ripple effect to all suppliers to northeast Ohio rotomolders can be significant, as well," Murdough said. "It's impossible to hide the magnitude of the trickle-down impact to our suppliers. Resin consumption, for example, which is closely tied to sales volume, is just one of many areas that will be impacted. Hopefully, that will be a short-term effect as the industry responds to the challenge."

As for what the companies can do to replace business lost to the Toys R Us closing, there are a number of options, some of which Murdough said he already was pursuing. His company was not caught off-guard the way some others might have been and relied far less on Toys R Us to begin with.

"In addition, Simplay3 has been diversified from the very beginning. Simplay3 has an extensive line of home and garden products and mailboxes, and continues to develop and bring innovation to these categories. As an example of our commitment to this market, we are exhibiting ... at the National Hardware Show in Las Vegas.

"Lastly, Simplay3 continues to grow with online retailers and in both international and regional markets," Murdough said.