Deal Breathes New Life Into Toy Biz

Discussion
Mar 18, 2005
George Anderson

By George Anderson


Jim Silver, publisher of the industry magazine Toy Book, thinks the deal by Kohlberg Kravis Roberts & Co., Bain Capital Partners LLC, and Vornado Realty Trust to buy Toys ‘R’ Us for $6.6 billion and take it private is great. In fact, he believes it will bring “new life into the toy business.”


Mr. Silver’s optimism is based on a belief that new management will seek to reinvent Toys ‘R’ Us and hasn’t simply bought the company as a real estate play. “I can envision Toys ‘R’ Us becoming a family entertainment store, where you can buy an iPod or an entry-level digital camera. It will be a one-stop shop,” he told The Associated Press.


Chris Byrne, an independent toy consultant, agrees with Mr. Silver’s assessment. “It will help them become a more streamlined operation with diverse products, not just toys, but lifestyle products.”


Moderator’s Comment: What are your thoughts on Toys ‘R’ Us becoming a family entertainment business instead of strictly a toy retailer? Will it make
the retailer more or less competitive by broadening into other product categories? Will the retailer have to reevaluate its pricing strategy?


According to Jim Silver, many in the industry were concerned that another group would win the bidding for Toys ‘R’ Us and begin selling off stores. While
he and others acknowledge the new owners are likely to make cuts, Mr. Silver believes KKR is looking to run the business as an on-going retail concern.

George Anderson – Moderator

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9 Comments on "Deal Breathes New Life Into Toy Biz"


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Art Williams
Guest
Art Williams
15 years 11 months ago

Toys ‘R’ Us has been trying to find its way for some time and it sounds like that search will continue with this acquisition. I would think that a smarter strategy might be to offer distinctive reasons for consumers to seek them out for toys. I can see expanding the toys to offer more adult toys, but even that is a stretch. Their two claims to fame have been price and selection. Wal-Mart has put a major crimp in the price part of the equation, but they still have their broad selection as a major draw. If they try to stretch themselves too thin and compete more directly with Best Buy and others, I think it would be their undoing.

W. Frank Dell II
Guest
15 years 11 months ago

Toys R Us was one of the original big box retailers; taking a fragmented category and creating a super store. The problem for them is just like what happened to the department stores. Categories changed and alternative channels captured segments. Clearly TRU needs a new strategy. By taking it private, that should have time without the Wall Street eyes overlooking and second guessing every move. Being private does not automatically translate into a successful retail strategy, but it does take away some of the interferences.
Is the buyout and taking it private a good idea? I think yes. How should the company be positioned? TRU faces the same problem as every supermarket that competes with Wal-Mart. They need a strategy and merchandising mix that bring people into the store, because they cannot buy the goods at Wal-Mart.

Jerry Gelsomino
Guest
15 years 11 months ago

Retail should be run by merchants, not investment bankers. Over the years, the buy-outs and mergers accomplished by those not fully acquainted with how to cater to the customer and sell products that the target shopper wants have ended up as a disaster. How many great retail names that went through that process are gone today?

Hopefully, those who actually will be running the company, no matter what they decide to sell, will keep that in mind.

Bobby Martyna
Guest
Bobby Martyna
15 years 11 months ago

I think a ‘funstyle center’ makes sense for the new TRU. An interesting concept store would have maybe 75,000 sq ft with four corners — a Chuck E Cheese style entertainment/restaurant, toys for toddlers and kids, Babies R Us focusing on apparel and accessories and electronics (mostly videos and videogames) for the whole family.

A nice promotional concept would be to host parties at the CEC-style corner and have the guests contribute to a collective gift certificate redeemable by the honoree on that day only. The recipient walks the floor with friends and family and selects gifts up to the certificate amount (or more :). A more upscale center would also have a nicer restaurant to host baby showers.

These types of concepts would smooth out dependencies on season and create a much more satisfying shopping environment than Wal-Mart ever could.

George Whalin
Guest
George Whalin
15 years 11 months ago

I don’t know if this deal brings “new life in the toy business,” but it certainly gives Toys R Us a chance to survive. With the company’s performance in recent years, survival has been in serious doubt.

Even with the obvious value of TRU’s real estate there are formidable challenges ahead for this company. Management will need to offer compelling reasons for consumers to shop in their stores. With Wal-Mart being the price leader in toys and many of the big toy companies in their pocket, TRU will have to offer a new, more compelling value proposition. While they will not be able to compete on price alone, there are plenty of opportunties to attract legions of customers with a better, more dynamic shopping experience; friendly, knowledgeable associates; distinctive products; in-store special events; and innovative marketing.

M. Jericho Banks PhD
Guest
M. Jericho Banks PhD
15 years 11 months ago

Converting the business in this way will be expensive (remodels, marketing) and time-consuming. Do the new owners have the resources, the will, and the research to make this change? On the other hand, TRU created a new retail category some years ago, and they may be able to again. The brand is still highly recognized among consumers.

Bernice Hurst
Guest
15 years 11 months ago

The family that plays together, stays together. Expanding the range to include all sorts of family entertainment sounds an excellent idea to me.

Ryan Mathews
Guest
15 years 11 months ago

Couldn’t very well become less competitive unless the real estate was in fact liquidated. The lifestyle concept has been explored — to very mixed results — by companies such as Media Play. I still think Toys’ problem was that it paid too much attention to creating revenue stream from vendors and not enough to understanding what people wanted and why. So if you’re selling audio equipment for example, you’ve now broadened the competitive set to include Best Buy, et al. A wise strategy for an already troubled company?

Patrick Leahy
Guest
Patrick Leahy
15 years 8 months ago

The biggest issue with Toys R Us is that it has lost its identity and is no longer a destination for shoppers. Wal-Mart, Target and other big box retailers have the same assortment, are more convenient and prices are comparable. Boutique toy hops have captured the imagination of the consumer with great service and an eclectic collection of toys.

At best, it has become a fourth quarter strategy giving minimal reason for the consumer to visit at other times of the year. If they want to breath life into the concept, they need a new strategy. The store’s layout, the assortment and the adjacencies look as if they hadn’t been tended to in years.

I would suggest a complete overhaul – rebrand it with its secondary name Kids R Us because it allows them to test a variety of product concepts without confusing their guests.

They have a presence in the marketplace; they need a bit of retooling.

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