Toys "R" Us Tries Russian Stacking Doll Method in Supermarkets

Toys "R" Us has been testing its toy-store-within-a-supermarket concept since August at four Giant supermarkets in Washington, D.C., and in suburbs in Maryland and in Virginia. CEO John Eyler says the chain is pleased with the progress of the 650-square-foot to 1,400-square-foot in-store shops. The idea was based on research showing that parents visit a Toys "R" Us store four times a year, in relation to a grocery store about 96 times a year.

Moderator Comment: What's in it for Giant/Ahold?

Question: What do you get when you place a Toys "R" Us section inside a combo format supermarket?

Answer: Part of a Wal-Mart Supercenter.

Wal-Mart, among other things, is the leading toy seller in the country. Toys "R" Us clearly needs to find ways to generate more frequent traffic to its physical and dot.com properties to keep the chain from losing further market share. There is a reason for its loss-leader pricing strategy with infant formula and disposable diapers in its primary format.

By placing locations within a supermarket, Toys "R" Us can benefit from the increase in customer traffic. Why though, would Giant/Ahold or anyone other grocer want to allocate space to a retailer that directly competes with it for the attention and business of valuable household with children consumers? Toys "R" Us must be paying some big bucks to get 1,400-foot slots within the store.

Toys "R" Us does not seem to fit with Ahold's food from every direction philosophy (food service, supermarket, home delivery, c-store) so a merger doesn't appear likely. Is there a strategic advantage this toy store-within-a-store concept gives Giant/Ahold that we are missing? [George Anderson - Moderator]