Toys R’nt Us For Much Longer

Aug 12, 2004
George Anderson

By George Anderson

It’s no secret that Toys “R” Us has been getting its figurative rear end kicked by Wal-Mart for some time. Well soon, to borrow a sentiment from a dead former President of the United States, Wal-Mart may not have Toys “R” Us to kick around any longer.

Yesterday, the nation’s second largest seller of toys announced it would separate its Babies “R” Us and Toys “R” Us businesses to operate as stand-alone entities and that it would “explore the possible sale of the global toy business.”

John Eyler, chairman and chief executive officer of Toys “R” Us, said in a company press release, “The series of steps we are announcing today reflect the fact that our global toy business and our Babies “R” Us business operate in distinct markets, and are at fundamentally different phases in their growth cycle. Consequently, by ultimately operating them as separate entities, we will provide a better opportunity for Babies “R” Us to continue its healthy growth. In addition, whatever form the separation takes, these steps should facilitate the execution of a restructured – and substantially leaner and more focused – global toy business that we believe can generate significant cash.”

Toys “R” US plans to restructure its headquarters operation and reduce operating expenses by more than $125 million by fiscal 2005. It also plans to take approximately $150 million in markdowns in the second quarter primarily to liquidate selected toy store inventory in the U.S.

Moderator’s Comment: What are your thoughts on the
Toys “R” Us announcement about separating businesses and “possibly” pursuing
the sale of its retail toy business?

Most of what we’ve been able to find on this story has
various analysts and industry pundits praising this move. The logic seems to
be that Toys “R” Us can’t beat Wal-Mart and the price game, so why try? And
Babies “R” Us is growing and that is the business worth investing in.

To all those holding this view, our biggest regret is
that you are unable to hear the raspberry we are now blowing in your direction.

To the Toys “R” Us Board of Directors, we’d like to offer
the following recommendation. Fire John Eyler.

When Mr. Eyler came to Toys “R” Us from FAO Schwarz, there
was high hope that he would create a culture of innovation at the retailer and
turn it into a polar alternative to Wal-Mart. Instead, Mr. Eyler persisted in
the belief held by those who preceded him at Toys “R” Us that offering a greater
selection of similar toys would be the difference maker.

Toys have always been about entertaining children. Toys
“R” Us never has really seemed to grasp that it needs to be in the entertainment
business. Toys aren’t just Barbie anymore and entertainment isn’t just about
loading a bunch of boxes on store shelves. Offer kids the toys they want, open
them up to items they can’t find anywhere else and turn your store into a playground.
Try doing what Wal-Mart preaches and very rarely delivers on — offer shoppers
retailtainment. It certainly beats what you’ve been doing up till now.
George Anderson – Moderator

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