There are endless reasons a big-box toy store would collapse during a retail apocalypse — and Toys R Us acknowledged a number of them in its most recent annual filing: the teetering tower of debt incurred by its private-equity owners, competition from Amazon, Walmart and Target.
They even wrung their hands about app stores, labor costs and potential tariffs raising the costs of the imported goods they sell.
But one risk stood out. Toys R Us said there just weren’t enough babies (emphasis ours):
The decrease of birthrates in countries where we operate could negatively affect our business. Most of our end-customers are newborns and children and, as a result, our revenue are dependent on the birthrates in countries where we operate. In recent years, many countries’ birthrates have dropped or stagnated as their population ages, and education and income levels increase. A continued and significant decline in the number of newborns and children in these countries could have a material adverse effect on our operating results.
It may not have been the biggest existential threat confronting Geoffrey the Giraffe (the store’s mascot), but it’s the one with the broadest implications outside of the worlds of toys and malls.
Measured as a share of overall population, U.S. births have fallen steadily since the Great Recession. They hit their lowest point on record in 2016 — the most recent year for which the Centers for Disease Control and Prevention has comparable data.
Even adjusted for the aging population and declining share of women of childbearing age, U.S. fertility rates are at all-time lows.
That’s problematic for Toys R Us, which also operates the Babies R Us stores. The company claims in its annual report that its income is linked to birthrates, and it appears to be right.
The change in the number of children born in the previous 12 years (and thus sitting right within the Toys R Us demographic), tracks closely with the company’s changing annual revenue.
There are, to be sure, numerous other factors at play. The same economic forces that encourage people to have children may also encourage them to splurge on toys, for example.
But it’s nonetheless apparent that Toys R Us’s fortunes rise and fall with the population of its target market.
And that’s why the company’s demise should worry the rest of us. Toys R Us focuses on kids, so it’s feeling the crunch from declining birthrates long before the rest of the economy. But it’s just a matter of time before the trends that toppled the troubled toy maker put the squeeze on businesses that cater to consumers of all ages.
The smaller generation of children whose lackluster toy consumption brought down Geoffrey the Giraffe will be adults soon. They’ll become the prime-age consumer spenders that drive U.S. economic growth.
And the generation after them will be smaller still, after accounting for a slight bump from the generational fallout of the baby boom.
Eventually, unless the country does something significant to encourage larger families or immigration, that narrowing base of the population pyramid will crawl upward.
In the end, Toys R Us will just have been the first of many businesses of all descriptions facing the same hard demographic truth: Economic growth is extremely difficult without population growth.