What happened

Shares of Mattel, Inc. (NASDAQ:MAT) were sliding today as reports emerged that Toys "R" Us could close all of its U.S. stores. The once-dominant toy retailer is a key partner for manufacturers like Mattel and Hasbro, so it's not a surprise to see Mattel reeling since it was already struggling before. As of 12:11 p.m. EST, the stock was down 6%.

The Barbie Dreamhouse

Image source: Mattel.

So what

Bloomberg reported after hours yesterday that the country's largest pure-play toy retailer may liquidate all of its U.S. stores after declaring bankruptcy and already announcing nearly 400 store closings earlier this year. The news site called the situation "fluid," but there's little doubt that Toys "R" Us's going out of business domestically would put even more pressure on the troubled Barbie-maker. 

A Jefferies analyst estimated that 10% to 15% of Toys "R" Us's revenue would disappear rather than going to other channels, and it could drive smaller toy manufacturers out of business. Mattel and Hasbro are reportedly working on contingencies if the retailer goes ahead with closing. 

Now what 

Mattel's fall from grace continues as the once-dominant owner of brands like Barbie, Hot Wheels, and Fisher-Price are losing sales to electronics as children are increasingly captivated by screens, and its traditional retail partners dry up. The company reported a massive loss in the normally strong fourth quarter as its turnaround efforts have yet to bear fruit.

Management hopes to return the company to growth by focusing on emerging markets and its innovation pipeline, but the headwinds against the company only seem to getting stronger.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Hasbro. The Motley Fool is short shares of Mattel. The Motley Fool has a disclosure policy.