Toys ‘R’ Us seeks to transform its business, again

Apr 01, 2014

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."

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?

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20 Comments on "Toys ‘R’ Us seeks to transform its business, again"

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Bob Phibbs

The stores I’ve seen have been unclean, dark, and crowded, so these issues being addressed are good.

The reality that moms can pick up a “shut up” toy in almost any store coupled with Millennials’ desire to reuse and recycle doesn’t bode well for big box toy stores.

Chris Petersen, PhD.

Retail “transformation” is a process, not an event.

The good news in the Toys “R” Us strategy is that they are focused on the fundamentals, versus glitz or some quick fix. Sound fundamentals win the game in the long run. Are any shareholders (other than Amazon’s) patient enough to wait for the long term?

Today’s omnichannel consumers are putting pressure on every retailer by demanding a “seamless” shopping experience. The seven points of transformation of Toys “R” Us are largely focused on stores. They would be wise to focus on how to integrate online and mobile into their transformation strategy.

Debbie Hauss

It is telling that I breathe a sigh of relief when I think about the fact that I don’t have to go to Toys “R” Us anymore, since my kids grew up. But to the retailer’s credit, I did “have” to go there when my kids were growing up. It was the best destination for a large selection of toys, games, party goods and more that satisfied kids from birth through the teen years.

That said, I applaud the new CEO for acknowledging the obvious faults – disorganized shelves and cluttered stores, to name just two. I think modernization, improved supply chain operations and a focus on mobile will help the brand regain some lost ground. Maybe by the time I “have” to go there with grandchildren it will be an updated and pleasant experience for the adults as well as the children.

Anne Howe

This strategy is back to retail basics all the way. Never a bad idea to re-invigorate the box itself, but I wonder what helpful “experience” they can provide that offsets the convenience play most busy parents crave in the category. Clean and well stocked may not be the trip driver they need to grow.

J. Peter Deeb

Competition has been the biggest factor behind the recent struggles. Toys can and have been purchased for less with reasonably good selection both in the Mass and Club arena as well as online.

The biggest questions in my mind in a turnaround strategy are not about the steps (they are all good and make sense), but around the ability to compete online and to train the store employees to execute the steps. In an organization as large as TRU executing the strategy will require employee training, reduced turnover and a disciplined management approach to the details!

Steve Montgomery

When Toy “R” US first arrived on the scene, it was a category killer – a toy superstore. The competition was smaller specialty stores and others that added toys during the holiday season.

The specialty stores are still around but in far, far, fewer numbers. Others like Walmart and Target have expanded their toy section and in addition to toys, offer their customer a variety of other merchandise. More recently, online shopping has gone from something a few people do to something that many people use to buy everything, including toys.

The plan as outlined is hard to find fault with. The questions are first, can they do it and second, will consumers care?

Ed Rosenbaum

Toys “R” Us has been an enigma to me over the past several years. They have stood somewhat tall in an industry besieged by other competitors. How are they going to make all the cosmetic changes in so many stores in a short period of time, after already losing $1 billion? The next question is one not addressed in the article: What are they going to do to let parents know of these changes and is it enough to draw them into the stores?

Comp rates falling as they did says parents are going elsewhere for what they used to get at Toys “R” Us. Sad.

Christopher P. Ramey

This isn’t transformation. It’s the cost of entry to being a retailer in 2014.

George-Marie Glover
George-Marie Glover
3 years 6 months ago

Although these steps are reasonable and necessary, it may be too little, too late. I switched to shopping online for my sons’ toys and video games long ago – mostly because the items I wanted to buy were seldom on the shelves.

Going out of your way to shop for a particular toy that is not in stock doesn’t leave you wanting to return. Furthermore, the most popular and trending items are usually offered at Mass or Club stores where many parents shop on a regular basis.

However, specialty items for gaming require a trip to a specialty store or an online shopping channel. Either way, Toys “R” Us needs to work as hard to make shopping seamless through online and mobile channels as it intends to at their stores.

Tom Borg
Tom Borg
3 years 6 months ago

People want fast, easy and convenient. Any store big or small that can deliver on that consistently will be winning the lion’s share of their target market. Yes, fewer births affect your market, however, if you can’t deliver to the parents what they need and want, well then,
seller beware.

Matthew Keylock
Matthew Keylock
3 years 6 months ago

Their focus hasn’t appeared to have been on the customer experience or core retailing.

Maybe their ownership structure has led to a focus on financial commitments and prevented agreement on the needed investment and change?

The changes outlined are necessary, but are they sufficient? It strikes me they will need to:
(1) communicate these changes so people visit again and like what they get;
(2) invest to bring to life what makes them different so staff and customers can feel it; 
(3) innovate and excite… What else are “toys” today? Could a platform for exchanging used toys provide value? How to provide experience not just products? Is the theme about entertainment not “toys”, and how can their relationships with Disney, Lego etc. bring something completely new for customers …

Lots of opportunity, lots of challenge!

With 4 children aged between 3 and 11, it will be interesting to see if I am tempted to visit again…

Mark Price

The biggest factor in the decline of Toys “R” Us has been the decline in customer experience. Today, when customers can seek out the lowest price online and order at the touch of a button, retailers must add something more to the mix in expertise and efficiency of checkout to succeed. In addition, having fair prices is a must — note that consumers did not say the lowest prices, rather just fair ones. Fair prices drive to trust and authenticity , which is critical for retailers today.

Gene Detroyer

When my kids were kids, my father (their grandfather) did all the toy shopping for presents for them. He went to TRU. They had everything he wanted to buy and MORE.

Now that I am the grandfather and buying for my 4 grandchildren, I too do all the toy shopping for presents. I go to Amazon. They have everything I want to buy and MORE.

My 10 year old grandson and I play Pokemon card games. He said, “Papa, you should get your own cards.”

I said, “Tex, where do I get them?”

He said, “Online!”

‘nough said.

David Livingston
3 years 6 months ago

I’ve never been in a Toys “R” Us store so I can’t comment on their struggles. As far as their transformation plan, it looks like the same recycled plan every distressed retailer has hanging up in the break room.

Craig Sundstrom

I agree with what others have said: hardly “transformational,” these moves are a “call” rather than a “raise” for staying in the retail game.

Peter Charness

Will straightening out the stores work in an era of the online category killer? I think making a store easy to shop, with a good variety of choice will make a difference. Toy “R” Us is a destination store with immediate gratification to see, select and take home and use instantly the products they well. Where else can you get that experience.

Robert DiPietro

I’m a parent of 2 young children and as a consumer I have no need to visit TRU. Between Amazon and Target or Best Buy, the relevance is waning. Fixing basic retail issues is not the answer. They need a reason for the consumer to drive by the competition.

W. Frank Dell II

No retailer (brick and click) can survive without good execution. The competition has raised the bar years ago. Being out-of-stock is simply not acceptable in today’s marketplace. Being out-of-stock for promotion items is the kiss of death today – just ask Bradlees.

The second factor for TRU is their deal addiction. Yes, every parent waits for the Christmas circular to see what is hot, but then they start comparison shopping. It is time for a blend of everyday low price and high/low pricing. The day of the big box specialty store is not over, but they must operate in the environment of today.

Alan Cooper
Alan Cooper
3 years 6 months ago

TRU is still an experience for the young children. TRU still is a differentiation from shopping aisles at TGT and shopping for a game at GameStop. Although it can never be FAO Schwartz, it can create a unique experience. Execution is basic and reinventing oneself is important, even if reinventing is just better execution. Passionate and well-trained store leadership drives solid execution. In stock positions need to match the expected demand of high profile ads. Customer service needs to find solutions for the customer, not lose them. Although online is great for many items, “gather ’round kids, we’re going shopping on the computer” does not make the cut yet for toys and kids.

Aakash Pahwa
Aakash Pahwa
3 years 6 months ago

How is TRU going to keep itself relevant? While there is a lot of “back to basics” in what they have unveiled, what I found interesting and missing was product. What TRU sells today is literally available any and everywhere.

To differentiate, TRU needs to start thinking about exclusive partnerships, license agreements, maybe creating a line of own-branded products, a toy library concept, mass customization, etc., etc. Couple these with state of the art online presence and experience and you have something in the making that can battle it out with the AMZNs & WMTs who are out there eating TRU’s lunch.


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