Why Amazon Could Buy Some Toys R Us Stores

Toys R Us Inc., once the leading toy retailer in the U.S., will likely disappear from U.S. shopping centers, barring a deal with any potential buyers. Now, one of its biggest rivals, a company blamed for its likely demise, may decide to swoop in as it doubles down on its own branded store locations.

On Thursday, the brick-and-mortar chain confirmed plans to close all of its U.S. stores, filing for Chapter 11 bankruptcy just six months after sketching out ambitious reinvestment plans intended to ward off accelerated competition in the industry. Rivals including e-commerce giant Amazon.com Inc. (AMZN), Walmart Inc. (WMT) and Target Corp. (TGT), all took a bite out of the Wayne, New Jersey-based toy retailer's market share in the recent years. 

A recent report from Bloomberg, citing people with knowledge of the situation, indicates that Seattle-based tech giant Amazon is considering the expansion of its physical store presence by buying up some locations from the failed toy chain. While Amazon isn't at all interested in keeping the Toys R Us brand, it is weighing the opportunity to use the soon-to-be-vacant places as part of its larger brick-and-mortar strategy following its $13.7 billion Whole Foods Market acquisition last year. The headline deal granted the online commerce behemoth 450 locations, adding to the company's new investments outside of e-commerce with physical bookstores and a convenience-store concept. 

Toying With Expansion 

The integration of Amazon's online and offline strategy has helped boost sales and draw more users to its Prime monthly subscription offering, as consumers seek perks such as better delivery options and in-store deals. The grocery landscape has proved to be a great platform for Amazon to sell its branded hardware, leading many on the Street to speculate the the retailer will continue to add product offerings such as its own apparel lines and a pharmacy. 

In taking over Toys R Us locations, Amazon would have another space to showcase popular products such as its artificial intelligence (AI)-enabled Echo devices, which run on the Alexa voice-activated platform. Touting the benefits of its technology could be easier to demonstrate in a real-world setting, as noted by Bloomberg. More stores could also benefit Amazon's delivery business by creating a larger network of physical locations for inventory and decreasing delivery times to customers close to the Toys R Us locations. 

Despite the potential benefits from such a deal, discussions could still yet lead nowhere. (See also: Why Amazon's Stock Will Rise 15% Even Amid Grocery Price Wars.)