The past year has been no economic joyride for UK retailers, and with Christmas just around the corner, it doesn’t help that the British Retail Consortium and the Office for National Statistics’ retail sales figures from July to September found that overall sales have slowed down, growing only by 0.6%. Extensive discounting across the territory also hasn’t provided much relief, as material costs have been rising for non-food retailers, putting the pressure on margins. Further compounding the situation is that consumer confidence is at an all-time low, and the BRC found that only one in five people in Great Britain believe recession will be over by this time next year. Toy sales have not gone unscathed, and in a climate where five independently owned toy chains across the UK have gone out of business in the last five years, it’s quite the feat that UK-based independent toy shop The Entertainer is defying economic trends and actually posting sales growth.

MD Gary Grant, who’s also the chairman of the Toy Retailers Association, helped open The Entertainer’s doors in 1981, and the chain has slowly but steadily been adding to its portfolio of bricks-and-mortar stores over the years. With 47 locations now – six of which have opened up this year alone – the small but robust chain has roughly 3% market share in the UK, and that number is growing.

Grant says The Entertainer’s model is a bit of hybrid of high-end retailer FAO Schwarz and mall-based chain KB Toys in the US. As such, The Entertainer mixes current toy lines with end-of-line clearance items and non-branded toys, and Grant has decided not to buy from some mainstream toycos. ‘I know what margins I need, and if I don’t like the margins, I just don’t buy,’ he says, adding that he feels other toy retailers also look at products that will give them greater margins. But retailer margins don’t influence sales to consumers; product offerings do.

As such, The Entertainer carries a much wider range of toys than mass-market retailers in the territory. Grant estimates that his larger-sized stores stock about 5,000 SKUs, and the smaller ones can accommodate roughly 3,500 SKUs. Taking Lego as an example, he admits that the prices for the current Christmas products are likely higher than those at other retailers, but his stores also stock Lego product from previous seasons, which might be discounted to half-price, and that helps garner consumer interest. In fact, it’s where the retailer’s strength lies – the mixed price-point strategy tends to lure back customers who may originally have been one-off shoppers, but then get hooked once they discover The Entertainer’s variety of values.

This tactic, unsurprisingly, works well for licensed product, from RC2’s die-cast Thomas the Tank Engine trains, to Hasbro’s licensed Star Wars action figures. ‘That’s what people come to The Entertainer for – they collect entire product ranges, and that’s what a lot of the big stores avoid. It’s what sets us apart,’ notes Grant. In fact, thanks to carrying such a wide variety of collector’s items, the retailer’s market share doubles to almost 7% with that demo. Licensed product sales in general have also increased significantly, and though Grant couldn’t divulge precise figures, he did say that licenses are the sole reason that he introduces secondary products to his ranges. He wouldn’t sell unbranded advent calendars, for example, but he would certainly carry them if they sported images of Ben 10 or High School Musical.

Even with the increasing popularity of licensed product, these SKUs are not merchandised separately, with the exception of Lego, products, which are shelved together by category. Meanwhile, product such as licensed and generic jigsaw puzzles are housed together. ‘The customer wouldn’t go to the licensed area of, say, Bob the Builder, to find a puzzle,’ says Grant. ‘Chances are, you’re choosing a jigsaw puzzle and you may or may not buy a license. We lay the stores out in a way that jibes with how we think the customer will look for product.’

As for growth categories, Grant singles out construction toys as the strongest one. He says he has introduced more SKUs this year with Lego leading the pack, experiencing significant growth with recent lines for Star Wars and Indiana Jones. Other brands such as Mega Bloks and Meccano have also been doing well. Grant has also introduced new products such as stationery, duvets and bed covers to The Entertainer’s mix, and these are primarily licensed. The toy trade has to survive on more than just the lead brand toys, he says.

The bricks-and-mortar shops are dotted across the south of England, primarily on high streets and in shopping centers. Though Grant is open to expansion opportunities, he’s not ignoring the unstable economy, and anticipates more retail closures across the UK in 2009. ‘Right now, any plans I had to open other shops will have to be reviewed in light of the financial environment,’ he says. ‘All things being equal [to last year], we would have opened up six more stores next year. We have no agreed store openings for next year, but that doesn’t mean we’re not looking.’

The shops are also well-placed for after-school, pocket money, birthday and Christmas spending, as opposed to a Toys ‘R’ Us, which would require a special trip. (Most of TRU’s outlets in the UK are outside of city centers and in the suburbs.)

But not everything is sunshine and roses, and The Entertainer is experiencing its share of challenges. Customer traffic in its physical locations is down slightly this year because of the economic climate, and Grant says that while he’s not looking to lay off any of his staff, he’s more careful about managing costs. The online business, however, is one to watch. And the retailer has been making sure to stay tapped into this burgeoning channel with its sites www.theentertainer.com, www.thetoyshop.com and www.thegadgetshop.com, the latter of which it acquired three years ago.

Grant estimates that 10% of UK toy sales will be conducted online this year, up from around 7% last year, and he believes that number will continue to rise. People are starting to trust online more than ever, he finds. So to keep up the momentum, he’s spent US$500,000 on building a brand-new platform for the company’s online sales, improving website navigation, checkout and product search functions. ‘An old, slow website is a bit like a shop with the lights out,’ he says. ‘People’s expectation of internet sites are much, much higher than they were even two years ago, so it’s all about the investment in software and hardware.’ The new site is now more functional, holding more products with a zoom-in option to give customers a closer look at what they’re buying, along with an improved and faster search engine.