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Arts and craft supplier Michaels is entering the land grab for Toys R Us' market share.
Hundreds of stores went dark earlier this year when Toys R Us liquidated, leaving a window for other retailers to step in and court the toy retailer's former customers. Toys R Us had accounted for about 15 to 20 percent of all U.S. toy sales last year. Many companies, including Walmart, have already laid out strategies to capture those sales — even retailers that aren't typically known for their toy sales.
Michaels, which has seen its stock drop more than 30 percent this year to a multiyear low, is hoping to entice parents of young crafters, builders and burgeoning artists with a robust selection of nonelectronic products and crafting materials. The company is making some major changes to the kids' sections of its stores, including stocking the aisles with more than 600 new items and partnering with brands to get exclusive access to some products.
"We call it creative play," CEO Chuck Rubin told CNBC. "It's kind of a variation of the toy market."
For Michaels, it's all about kids making their own projects — think jewelry-making kits, clay and painting supplies. If the store stocks a product with a licensed brands like "Star Wars" or "My Little Pony," kids usually have to assemble the item before they can play with it. They've added Legos. Typically, the only items that run on batteries are part of its S.T.E.M. selection. These products foster skills in science, technology, engineering and mathematics and include robotics kits, circuit builders and coding toys.
Sales in the segment Michaels is focusing on — arts and craft toys — were up 8 percent between January and July, according NPD Group. This spike in sales is largely due to the dollar growth of craft kits, which were up 13 percent. In the same time period last year, sales of these craft kits were down 11 percent mostly due to the increased popularity of slime products.
Slime enthusiasts initially had to buy all of their ingredients separately for their projects. But as the trend grew more popular, companies rushed in with their own slime craft kits, bumping up sales of the category.
Rubin said slime continues to be popular, and Michaels carries slime kits and individual materials.
In addition, Michaels has lined up a number of products that can't be found at any other retailers. This is a common tactic among toy sellers around the holiday season. Offering unique items can draw more people into stores, who often shop for other things while they are there.
Michaels is adjusting store layouts to more clearly define where shoppers can find products for kids, and its website will make it easier to shop for kid-friendly crafts. The retailer will continue to hold crafting events in its stores to lure parents and children. Last year, the company hosted more than 120 such events and had more than 1 million kids participate.
That should help set Michaels apart from others trying to get a bigger share of holiday sales. For example, Party City — not a traditional toy retailer — is opening 50 Toy City stores for the holidays, which will sit alongside its Halloween pop-up shops. The company also said it plans to permanently add more toys to its Party City locations.
Holiday sales in the U.S. are projected to be strong this year. Deloitte, for example, estimates sales will rise 5 to 5.6 percent this year, helped by a strong economy and low unemployment. If Michaels can grab a bigger share, it will provide a much-needed boost. In its latest quarter, sales at stores open at least 12 months fell 0.4 percent.
"We are very focused on kids, it is one of our core categories," Rubin said. "It's not so much of a toy business, but we think given the strength that we have in [the category] and the dislocation of the market, there is a nice piece of the business we can pick up."