No more playing around – Toys ‘R’ Us is out of the retail game
Last September, Toys “R” Us chairman and CEO Dave Brandon spoke of “the dawn of a new era” for his company after the retailer filed for Chapter 11 bankruptcy protection. While Mr. Brandon spoke of a brighter future where the company would be in a better position to deal with a debt load of $5 billion, many were skeptical. Unfortunately, the skeptics were right. Toys “R” Us has announced it will begin the process of shuttering all 735 of its U.S. stores.
Mr. Brandon said the move was unavoidable as the retailer no longer had the financial support it needed to continue operating in the U.S. “This is a profoundly sad day for us as well as millions of kids and families who we have served for the past 70 years,” he said in a statement.
While Toys “R” Us has not announced a specific figure, The Wall Street Journal estimates that 33,000 Americans working at the chain’s stores and in supporting positions will soon be out of jobs.
The Journal reported last month that the retailer had backed off a promise to pay severance to affected store workers in January. A Toys “R” Us spokesperson told the paper that some store employees may be eligible for performance bonuses connected to liquidation sales.
One slight glimmer of hope is that Toys “R” Us has said it is having discussions with “interested parties” that may be willing to acquire up to 200 of the chain’s top stores in the U.S. along with its stronger Canadian business. The retailer said it intends to go ahead with liquidation sales at these locations as if a deal will not be struck.
In the end, Toys “R” Us’s demise is likely to be tied to the $6.6 billion leveraged buyout of the company by Vornado Realty Trust, Bain Capital and KKR & Co. Over the years, Toys “R” Us has lacked the capital to remodel stores and create greater synergy between online and physical locations as it sought to pay down debt.
- Toys “R” US to Wind Down U.S. Business – Toys “R” Us, Inc.
- Toys ‘R’ Us Tells Workers It Will Likely Close All U.S. Stores – The Wall Street Journal
- Is Toys ‘R’ Us nearing the point of no return? – RetailWire
- Toys ‘R’ Us files for bankruptcy, enters ‘new era – RetailWire
DISCUSSION QUESTIONS: Why do you think Toys “R” Us failed? What will the liquidation of Toys “R” Us mean for retailers and vendors in the toy category? How will store closings affect the retail real estate market?
Ken LonyaiConsultant, Strategist, Tech Innovator, UX Evangelist
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37 Comments on "No more playing around – Toys ‘R’ Us is out of the retail game"
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President/CEO, The Retail Doctor
Once the store can’t be relevant, they turn to the hedge funds and VCs who suck any viable path forward away from them. It is also hardly a great time for smaller toy stores as a raft of closures will dampen their entire 2018.
Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
Exactly. The key word is “relevant.”
Strategy & Operations Delivery Leader
Great points Bob! The key word is indeed relevance. Retailers have to continuously reinvent themselves to survive and thrive. The Toys “R” Us model worked very successfully for years but didn’t change and adapt to the changing consumer preferences.
President, Protonik
I disagree a bit. This wasn’t about relevance. It seems to me the problem is that other stores took away their opportunity to be unique — to have a clear image of “why shop at Toys ‘R’ Us.” Target’s superb LEGO collection, for example, made a trip to Toys “R” Us unnecessary — and difficult if the family also needed toilet paper and shoes.
EVP & CMO, Randa Accessories
Good call, Bob: “Relevance.” It’s important to remember that relevance is a moving target, evolving with consumer demand, path-to-purchase and the competitive retail landscape.
Principal, Retailing In Focus LLC
It’s unlikely that Toys “R” Us is going to stay afloat, and this is a big deal for those who follow the recent history of retailing. They were among the first “category killer” stores with broad assortments of a single category in a big-box format. There have been others (Linens ‘n Things, Sports Authority, etc.) but this one stands out. If you see reporting on “the Amazon effect,” it’s more complicated than that.
It’s tough to survive in a highly seasonal business like toys given the growth of e-commerce and the dominance of discounters in the same category. And there has been a generational change, where many of today’s kids are interacting with technology (smartphone apps, streaming video games) instead of the toys of a short time ago.
And one more lesson learned: A mountain of private-equity debt doesn’t help.
Managing Director, GlobalData
The liquidation of Toys “R” Us is the unfortunate but inevitable conclusion of a retailer that lost its way and forgot core retail competencies.
Even during recent store closeouts, Toys “R” Us failed to create any sense of excitement. Moreover, its so-called heavy discounts remained well above the standard prices of many rivals like Amazon and Walmart. Arguably, if Toys “R” Us can’t successfully execute a closeout and stimulate interest, then it has little to no chance of trading under normalized conditions.
Consultant, Strategist, Tech Innovator, UX Evangelist
Ultimately Toys “R” Us failed from the pervasive arrogance that besieges the retail sector.
No doubt Amazon will be repeatedly mentioned in light of this demise, but Toys “R” Us made their own bed. They have stuck with an outdated retail model at least two decades beyond its lifespan. Rather than investing in technology, elevating the store experience, and offering enough value to thwart competitors, they maintained a discount store atmosphere without the pricing to back it up. That opened the door for — well, everyone knows.
Lesson to be learned: last year’s business tactics no longer cut it in retail. Evolve and think of the customer. Nothing but the customer.
Principal, Cathy Hotka & Associates
Studies by Bloomberg and others have shown that a number of U.S. retailers have unsustainable levels of debt, some brought on by leveraged buyouts. Others mentioned recently include Bon-Ton, Kohl’s, Claire’s, J. Crew, Nine West and Macy’s. Without the capital to adapt and reformat, it’s tough to survive.
Chief Executive Officer, The TSi Company
Strategy & Operations Delivery Leader
Professor, International Business, Guizhou University of Finance & Economics and University of Sanya, China.
While the company started in the late ’40s, the concept we all know took hold in the ’60s. That is a millennium for a retail concept. In fact, few companies, including big ones last that long. The Toys “R” Us concept ran its course while new ideas and new competition (online, Walmart) grabbed the the consumer’s changing behavior and tastes.
And yes, the LBO didn’t help and probably accelerated the decline. LBOs are a very dangerous game and just one hiccup can destroy the debt service projections.
Strategy Architect – Digital Place-based Media
This addition to the heap of retailer that “once were” emphasizes how risky retail is as consumer preferences and buying options change. Toy makers and importers will miss this massive retail outlet and employees will be scrambling to find new jobs. The primary lesson is that retailers must be more nimble than ever before to respond to consumer changes, expand into trending areas and bring better customer experiences to the store.
VP of Strategy, Aptos
Ah, the end of the toy jail. The entire financial side of the business is completely the reason why they failed, no arguments there. Retailer MUST invest to keep up with the transformation disrupting the industry.
The only thing I’ll add is that it is striking, when you walk into a Toys “R” Us today, just how bad of an experience it is — just how much consumer expectations have evolved from what used to be a totally successful model. If nothing else, the last days of the company should serve as a reminder to everyone exactly what’s at stake if you don’t change.
President, Protonik
There’s too much blaming I see around Toys “R” Us that suggests they just didn’t “innovate.”
But clearly market manipulations, like the LBO here, are a major problem in retail. Besides LBOs of retailers, I am very concerned by the M&O fad among manufacturers. It’s nearly impossible for a retailer to carry significantly unique product when, for example, Stanley/Black & Decker and TTI owns so many of the tool brands. Consumers do not like it when all stores and all products (regardless of brand) look basically the same.
Any Toys “R” Us analysis also needs look at how the toy business changed since their heyday. When we were first buying toys for my kids, Toys “R” Us was the place. But over time Target, Walmart, Fred Meyer and many other stores dramatically expanded their toy departments. Then these other stores locked up exclusives, etc.
It’s hard to blame Toys “R” Us when the channel around them evolved rapidly in a way that eliminated the unique reasons to go shop there.
Key Account Director
How exactly do stores remain innovative and differentiate themselves with unique product when those items are being made by the smaller and mid-sized vendors? Only the giants can afford to sell to them and absorb all the allowances and charge-backs. What new, exciting (and small) guy can afford to sign a vendor agreement that states, in fine print of course, that they can cancel a signed PO up until the moment of delivery? This is the reality.
President, Protonik
Valid question and I know that reality well. Except we aren’t talking about small operations. We’re talking about the difference between large makers and massive conglomerates. At least that’s the case of tools which I know best.
Black & Decker wasn’t small before they were bought by Stanley. Milwaukee tools wasn’t small before being bought by TTI. Craftsman wasn’t an insignificant brand before being bought by Stanley. Yet we are already seeing an amazing blandness in assortment brought by those companies.
The tiny guys? Nope. They can’t pull it off — here’s a post I wrote about how consumers would be served well if Kickstarter’s mythological products would have been forced to pass the retail requirements.
But, also, retailer demands of manufacturers to avoid risk have reached a dangerous point where they drive product assortment into dullness so nobody wants to shop their stores. Spreadsheet management by buyers isn’t a good thing — some never look up from the spreadsheet to consider whether anyone would want to shop their department.
Key Account Director
“…retailer demands of manufacturers to avoid risk have reached a dangerous point where they drive product assortment into dullness so nobody wants to shop their stores. Spreadsheet management by buyers isn’t a good thing — some never look up from the spreadsheet to consider whether anyone would want to shop their department.”
Exactly! I was new to major retail in the early ’80s when the department store was king. Those were the days that the industry (as we knew it then) was breathing its last gasp of creativity and innovation. Once the race started to fill the buying offices with MBA bean-counters, it pretty much went to…well…you know. And here we are.
Geraldine Stutz, we hardly knew ye!
President, Protonik
So frustrating. I came to retail later. But it’s incredibly sad to me to see brilliant buyers who see how to creatively maximize sales within their departments pushed out by bean counters who only know how to ensure they meet their Six Sigma goals … while making the department uninspired.
Chief Amazement Officer, Shepard Presentations, LLC
One reason Toys “R” Us failed is that they focused on price. It was all about low prices. The moment another company (as in Amazon — or any other competitor) offered a lower price, the customer left. When a customer is loyal to a company because of price, it’s just a matter of time before they shift their loyalty to a different company.
One other comment on this topic is that this may not really be the end of Toys “R” Us. It wouldn’t surprise me to see Toys “R” Us come back in the future.
Strategy & Operations Delivery Leader
The brand name has some value and is synonymous with our imagination, and childhoods. Perhaps Toys “R” Us will come back, same as FAO Schwarz is planning a comeback this year. Shep, I do agree that not competing with pricing was a significant issue, however, the value-added services and customer experience simply was not up to the level it needed to be.
Founder | CEO, Female Brain Ai & Prefeye - Preference Science Technologies Inc.