What Happened to The Brick-and-Mortar Toy Store Industry?

The brick-and-mortar toy store industry has navigated a tumultuous period, marked by significant shifts in consumer behavior and intense competition from online retailers. The early 2000s saw a gradual erosion of market share for physical stores, culminating in the dramatic 2017 bankruptcy and 2018 liquidation of Toys R Us, a once-dominant force in the U.S. toy market. This event left a substantial void and highlighted the severe challenges faced by traditional toy retail, including high overhead costs like rent versus the highly seasonal nature of toy sales, with nearly half of annual revenue generated in the fourth quarter due to holiday gifting.

The primary driver of this decline was the rise of e-commerce, offering unparalleled convenience, wider product selections, and competitive pricing. Online sales in the U.S. Toys & Hobbies category, for instance, accounted for 65.3% of sales from top 1000 retailers in 2023, up from 51.5% in 2022. Consumers increasingly prefer digital channels for detailed product information, customer reviews, and comparison tools.

However, the industry has not simply faded away; instead, it has undergone a significant evolution. A key turning point has been the embrace of 'experiential retail,' transforming stores from mere transaction points into engaging destinations. This strategy focuses on providing memorable, interactive experiences that online shopping cannot replicate, such as hands-on play areas, demonstrations, and personalized product creation. Brands like FAO Schwarz, which re-opened its iconic New York City flagship in 2018 and has since focused on global expansion with theatrical experiences, exemplify this shift. CAMP, another family experience store, offers rotating immersive worlds and hands-on activities. Even mass retailers like Lowe's are integrating buildable toy workshops inspired by digital creators like MrBeast, blending digital curiosity with physical creativity.

The comeback of Toys R Us, under new ownership by WHP Global since 2021, is a testament to this evolving strategy. After initial smaller-scale attempts, the brand has expanded significantly through shop-in-shops within Macy's stores nationwide, a flagship store at the American Dream Mall, and plans for new standalone flagship stores and seasonal locations in partnership with Go! Retail Group. As of February 2026, Toys R Us operates 1,664 stores across 35 countries, with 2025 being its largest international expansion year. This resurgence capitalizes on brand nostalgia while adapting to modern retail demands for immersive experiences.

Beyond experiences, the industry is also adapting to new consumer demands for educational toys, STEM/STEAM products, and sustainable options. The 'kidult' market—adults purchasing toys for themselves—is also a significant growth driver, with this demographic being the fastest-growing and highest-spending toy buyer cohort in 2025, up 18% year-over-year. Licensed properties, collectibles, and building sets (like Lego) continue to perform strongly. Lego itself reported a record year in 2025 with $13 billion in revenue and is accelerating its U.S. footprint with new stores and a factory, emphasizing its 'retailtainment' strategy. Chinese toy brand Pop Mart is also expanding its U.S. presence, planning 21 new stores in Simon properties in 2026.

As of May 2026, the global toy market is projected to reach approximately USD 128.6 billion, with the U.S. toy industry returning to 6% growth in 2025 after two years of decline. While online sales continue to grow rapidly, physical retail remains crucial, especially for providing hands-on product experiences that parents value. The number of Hobby & Toy Stores in the U.S. increased to 61,067 in 2026, a 4.9% increase from 2025, indicating a steady growth in physical locations. The industry's current status is one of dynamic adaptation, blending physical presence with digital innovation to create compelling omnichannel retail journeys.