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Target Gains a Holiday Season Edge by Joining Forces With Toys R Us

When Toys R Us went bankrupt, a number of retailers tried to fill the void it left in its niche. Amazon won some of that business simply by the power of its e-commerce ubiquity, while Walmart (NYSE: WMT) and Target (NYSE: TGT) gained market share in toys by increasing the floor space in their stores devoted to them.

The challenge is that, for the most part, toys are a commodity. All mainstream retailers are able to offer roughly the same selections, and neither Target nor Walmart has been able to gain much of an edge over the other, aside from whatever discounting each is offering at any particular moment.

Now, however, Target has found a way to make its toy department stand out. It has partnered with the newly revived Toys R Us.

Three Target employees

Target is partnering with Toys R Us. Image source: Target.

What is Target doing?

Toys R Us has reemerged as a brand name, if not yet -- in the U.S., at any rate -- a major store chain. Its recently relaunched website offers videos, articles on toy trends, and product reviews. The plan now is to be a resource for consumers looking for toy information. But when they're ready to buy, it will be redirecting them to Target.com.

This deal makes sense because the Toys R Us brand, while tarnished, still means something to many consumers. It's plausible to think that parents will visit ToysRUs.com, read about the toys their kids want, and then make purchases that Target will fulfill.

This relationship will also extend to the limited retail presence Toys R Us plans to rebuild. The company, which closed all of its U.S. stores after it filed for bankruptcy, will dip a toe back in the brick-and-mortar water starting next month, and Target will be part of that effort as well.

"This fall, Toys R Us will open experiential retail stores in Houston, Texas, and Paramus, New Jersey -- specially designed to help families make memories as they discover the hottest new toys in person," according to a press release. "See something you'd like to buy that isn't available onsite? A sales associate will help you complete a sales transaction, and Target.com will fulfill the order."

Is this a good deal?

It's hard to see a downside in this partnership for Target. The retailer will get a stream of customers sent to it by its former rival. That gives the company an edge in gaining market share as the toy brand still has a certain level of credibility that should lead consumers to its website and stores.

For its part, TRU Kids, the new owners of the Toys R Us brand, clearly recognize that they're not going to build the chain back to its former strength. Though the company has announced its intention to open another 10 stores next year, the larger part of their plan appears to involve leveraging the Toys R Us name. By partnering with Target, the toy company can keep that name alive and in front of consumers, and take a cut of each sale made via its website. (Precisely how large a cut is unclear -- the terms of the deal are not public). That's a low-risk, limited-capital strategy.

And for Target, teaming up with a former niche rival that has dialed down its comeback ambitions should help it gain an edge over Walmart and Amazon this holiday season. In a product segment where it's hard for any retailer to stand out based solely on its offerings, that's a smart play.

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