Amazon and TRU After the Split

Discussion
Jan 15, 2007

By George Anderson

Once they were online partners but that time seems long ago. Now, Amazon.com and Toys R Us are fighting it out online for customers searching for the hottest toys.

Toys R Us reported that the recent holiday selling season was its best in years. The company saw same-store sales increase 4.1 percent during the season. The chain did not break sales for its online business but will report fourth quarter and annual sales numbers in the coming months. Toys R Us is privately-held.

Amazon is on record as saying this past holiday season was its best ever. Whether that best ever tag applies to toy sales has yet to be confirmed. The company did say among its top sellers on Dec. 11 (the company’s biggest ever sales day) were Laugh & Learn Cuddly Learning Puppy and Princess Genevieve Doll from Barbie.

As the break with Toys R Us was taking place, Amazon stepped up efforts working with toy manufacturers such as Fisher-Price and Leap Frog along with retailers such as Target and eToys to expand its selection beyond what it had when the two companies worked together.

Both companies are working in an increasingly competitive space as demonstrated when Wal-Mart began some aggressive price cutting on toys in the lead up to Christmas. The rationale for Wal-Mart and others has been that slashing prices on toys during the holidays gets customers in stores where they will buy other items without the deep discounts.

Cliff Annicelli, editor of toy-industry magazine Playthings, told The Seattle Times that stores that exclusively sell toys such as Toys R Us do not have the same luxury. "The toy business is one of the only market segments where, when demand for the products goes up, prices go down," he added.

Toys R Us and other toy retailers also continue to see kids turn from toys to video games and other electronic gadgets. While Elmo T.M.X was very hot for the holidays, sales of Nintendo Wii and Sony’s Playstation 3 were outstanding. Apple’s iPod was once again one of the top holiday gifts.

Amazon, because of its wide product category depth, was and is less dependent on a strong toy market than its former partner, Toys R Us.

Gerald Storch, chairman and chief executive officer of Toys R Us, said the company’s position is strong and the company is taking further steps to make it easier for consumers to do business with the retailer.

Mr. Storch said bricks and clicks retailers have an inherent advantage over online-only merchants. For the 2007 holiday season, for example, consumers will now be able to order online and have the choice of home delivery or picking up products in Toys R Us stores.

Discussion Questions: What are your thoughts on how Amazon and Toys R Us are faring without each other? What is your assessment of how Toys R Us is progressing under the leadership of Gerald Storch? What has he brought to the company?

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3 Comments on "Amazon and TRU After the Split"


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Kenneth A. Grady
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Kenneth A. Grady
15 years 4 months ago

The toy category is increasingly tough, putting aside the intense competition among the retailers. The continuing age compression of the segment of children who want toys, dearth of hot products (with very few exceptions), and generally evolving retail landscape make it a tough business. Amazon is using toys to round out its offering online, whereas TRU views toys as its main business. In retail today, supporting a big box on toys is very, very difficult. While the battle is far from over, it is more difficult seeing a clear path to victory for TRU than it is to see toys being a component of what Amazon offers, even if not a very profitable one.

Don Delzell
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Don Delzell
15 years 4 months ago
Reiterating the difficulties of competing against WM and TG would be easy and add little value. TRU “gets” it. They can only compete in assortment, merchandising, and service. The current mix, across most categories, attempts to carefully add to the key driver items also found at TG and WM, with augmented selections of exclusives, accessories, and novelties. In the arena of merchandising, in-store demos are already taking place, as are vendor-supported displays and interactive presentations. The problem is that these things cost money. It’s easy to see the “what” for TRU. It’s a lot harder to articulate the “how.” The toy industry is supportive of TRU, and has a vested interest in it’s success. What form will that success take? My guess is that it will be in the nature of experiential merchandising, where the experience of toy shopping itself establishes TRU as a destination source. Online, the strategy should be comparable, as breadth of assortment is too easily matched, and price far too easily compared. Toys are fun. The experience of choosing a toy… Read more »
Mark Lilien
Guest
15 years 4 months ago

Customer acquisition is the #2 cost for any internet retailer. A reasonable strategy for Toys R Us: uses the store traffic to acquire most of its internet customers, and conversely, use the internet site to build traffic in its stores. Amazon has no physical stores, so its traffic generator is based on leveraging its wide assortment in many categories, getting customers to shop in multiple areas. Both strategies seek to minimize the customer acquisition cost. An internet site can easily spend $3 to $75 trying to get a new customer. When you’re selling $15 toys, this cost isn’t reasonable.

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