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Toys R Us Wonderlab salesperson Chyanne Sharma, left, demonstrates how to solve a Perplexus puzzle game for Kayla Henry, 7, at the new store in North Vancouver, B.C., on May 23, 2013.DARRYL DYCK FOR THE GLOBE AND MAIL

The toy box is about to get more crowded.

Toys "R" Us Canada is set to launch a new store that stocks only educational and "learning" products, betting on the fastest-growing segment in an otherwise struggling sector. The country's largest specialty toy chain will open a Wonderlab by Toys "R" Us test store in North Vancouver on Saturday.

"If it goes well, we would like to see more of them," said Liz MacDonald, vice-president of marketing and store planning at Toys "R" Us Canada, which is already scouting potential Wonderlab sites in central Canada.

That will put pressure on smaller players, including Indigo Books & Music Inc. and Mastermind Toys, both of which are expanding in the learning toy market. Online players also are making a play. Toys "R" Us, and other retailers, are grappling with shifting consumer habits as children opt for computer-based games and ditch traditional toys at an earlier age, squeezing sales.

The bright light has been in the sales of items such as building sets, arts-and-crafts kits and preschool toys, prompting Toys "R" Us, Indigo and others to bulk up in those aisles. Even so, in a tough economy amid limited sales growth and the added competition of U.S. discounter Target Corp. and e-commerce rivals, incumbents will feel more heat.

"Learning toys are where the growth is," said Sean McGowan, toy analyst at Needham & Co. "You're vulnerable if you don't protect that."

Last year, sales in the estimated $20.5-billion (U.S.) American toy sector fell 4 per cent, while sales of building sets jumped 16 per cent, those of infant and preschool products (as well as dolls) gained 1 per cent and sales in all other segments dropped, according to data from market researcher NPD Group.

The data was obtained by The Globe and Mail, although an NPD spokesman warned that it is working on "a major restatement" of the figures. Mr. McGowan said the trends seem to be similar in Canada.

Toys "R" Us recently abandoned a planned initial public offering amid declining financial results. Despite the softness, the chain's U.S. division reported that fourth-quarter sales in its juvenile and learning categories grew 2.6 per cent and 1.4 per cent respectively, while sales of electronics and video games dropped 11.1 per cent.

Ms. MacDonald said Toys "R" Us Canada wants to build on the strong results among toys that can teach and entertain children and widen their imagination. Wonderlab stores also will be located in smaller spaces, which jibe with consumers' search for smaller stores that are easier to navigate, she said. The North Vancouver outlet, at 8,000 square feet, is less than one-fifth the size of a conventional Toys "R" Us superstore.

Its shelves will carry inventory that ranges from preschool activities to electronic and phonics-based learning aids, construction and science kits, as well as books. "We've got some very strong power brands that are anchoring the store," Ms. MacDonald said, including Lego, Crayola, Leap Frog, Vtech, Playmobil and Play-Doh.

The test comes as privately held Mastermind is rolling out a cross-country expansion from its Toronto base, with 23 stores today and the first one outside of Ontario – in Calgary – set to open next month. The toy chain plans to triple the number of outlets eventually.

"We're proving, the way we operate, that the space is good," said Jon Levy, chief executive officer and co-founder of Mastermind.

He said toy sales have been buoyed by Lego's business, particularly the launch of Lego Friends which has "built a category within Lego that was the size of Barbie right out of the gate." The line, which is "on an absolute tear," has widened the Lego field to girls. He said Mastermind is enjoying overall sales momentum, and has an edge by teaming up with upscale and specialized brands in areas of wooden toys, crafts and others beyond the standard labels such as Crayola, which is featured as an end-of-the-aisle draw at discounter Wal-Mart, he said.

Still, educational toys can be risky for Toys "R" Us, Mr. McGowan said. Consumers can overestimate the appeal of the products. "Parents want their kids to prefer those products over the evil dolls, and they don't. Often they do, but not enough."

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Tickers mentioned in this story

Study and track financial data on any traded entity: click to open the full quote page. Data updated as of 28/03/24 3:59pm EDT.

SymbolName% changeLast
IDG-T
Indigo Books & Music Inc
+1.98%2.06
TGT-N
Target Corp
+1.45%177.21
WMT-N
Walmart Inc
-0.91%60.17

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