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Toys R Us could soon liquidate its U.S. operations and the result will leave a lasting impact on the toy industry, Jefferies analyst Stephanie Wissink wrote in a note to investors Friday.
While Toys R Us accounted for 15 to 20 percent of U.S. toy sales last year, not all of that will shift to other retailers when the retailer is gone. Instead, about 10 to 15 percent of this volume will fall through the cracks and be lost for good.
Wissink estimates between 85 and 90 percent of Toys R Us' volume in the second half of the year would be redistributed. Products will shift and be sold by e-commerce sites such as Amazon, big-box stores such as Target or Walmart and drug and grocery stores. Other retailers such as Kohl's, J.C. Penney and Best Buy may clear more shelf space for toys.
"It's difficult to estimate, but based on third party consultancy surveys of consumer visits to TRU, roughly 10 to 15 percent of purchases are estimated to be incidental and may not transfer to other channels," Wissink wrote.
Sources told CNBC on Thursday that Toys R Us could soon liquidate its U.S. operations, but that situation remains fluid. A terrible holiday season hurt the toy retailer's chances of recovery, and it has already begun liquidation sales ahead of planned store closures.
Toy companies such as Hasbro and Mattel have already begun preparing contingency plans for such an event. Representatives from Hasbro told CNBC during the New York Toy Fair in February that they are not dependent on one retailer and have explored multiple new channels to sell the company's toys.
While Amazon, Walmart and Target will pick up the slack for bigger toy companies, small toy brands could be in trouble.
Toys R Us' massive size allowed it to sell both name-brand toys and products from upstart toymakers. However, with its closure, the big-box retailers likely won't take in these brands because they are already pinched for shelf space in the toy section. This will make it even harder for small toy manufacturers to gain ground.
Wissink said she expects the fallout of Toys R Us' liquidation to cause a rise in the number of mergers and acquisitions of smaller toy makers. Hasbro and SpinMaster are likely the best-positioned toy companies to make these acquisitions and build out their portfolios, she said.