Toys ‘R’ Us seeks to transform its business, again
At a media event in New York City last week, Toys "R" Us revealed a new turnaround strategy that relies less on wowing kids with hot toys and more on pleasing parents with in-stock merchandise, uncluttered aisles and "fair" pricing.
TRU Transformation, as it is called, comes as the toy chain logged a $1 billion loss in 2013 amid heavy promotions. Sales fell to their lowest level since 2009, with holiday quarter comps down 4.1 percent.
Antonio Urcelay, the chain’s former European manager who became CEO in October, said a comprehensive analysis over the past several months showed that some of Toys "R" Us’s challenges are macro-driven, including a decline in birth rates since 2007 and the rapid growth of online shopping. But much has been "self-inflicted" due to "several execution issues."
The four key fixes:
- Improve the customer experience in-store and online;
- Make progress on changing price perception;
- Put disciplines back into inventory management;
- Right-size the cost structure on a global basis.
On the positive side, Mr. Urcelay noted a Cambridge Group survey found Toys "R" Us ranked at the top among key U.S. competitors in consumer perceptions on newest items, friendly employees and "hot" toys. It ranked second in assortment. On the downside, the chain scored last in organized shelves, easy returns, online/mobile performance and shipping, and second to last in fast checkout. It also ranked last in perceptions around "Fair prices I can trust" and second to last in price matching.
To improve price perceptions, prices will be lowered on certain items but the major focus will on simplifying prices and sales signs. Its price-matching policy will reduce exclusions.
Stores will feature new floors, new lighting, wider aisles and better signage to make them easier to shop. Some products will be eliminated to reduce clutter. In-store labor will be added to support key departments. Speedier checkouts will also be a focus.
A supply chain revamping is expected to improve in-stocks on popular items with new "clearance blast" events expected to move slow-moving merchandise in favor of fast-moving ones. Other priorities include upgrading its website and mobile app, and better leveraging its 18 million loyalty program members in the U.S.
Toys "R" Us will continue to pursue differentiation by offering the "broadest" selections, exclusives, events and "exciting shops and product statements in-store."
Aiming to be "realistic," the 2014 objective of "TRU Transformation" will be to slow the company’s sales decline, stabilize cash flow and improve EBITDA to position the business to grow revenue and profits in 2015 and beyond.
"This is not rocket science," nor necessarily "innovative ideas," Mr. Urcelay said in a Forbes piece. It’s a plan to fix the "foundation of a business."
- TRU Transformation Presentation – Toys "R" Us Inc.
- New Toys "R" Us CEO Reveals ‘Diagnosis,’ Treatment Plan For Ailing Chain – Forbes
- New Toys ‘R’ Us CEO’s strategy to reverse declining sales: ‘Be realistic’ – MarketWatch
What do you see as the biggest factors behind Toys “R” Us’ struggles in recent years? What do you think of the chain’s transformation plan?