Walmart’s Loss May Be Toys ‘R’ Us’ Gain
Something unusual happened this past holiday season. Walmart
gave up share of toy category sales.
According to a Reuters report,
a series of missteps, including cutting product selection and failing to add
floor space before Christmas, contributed to a less than Walmart-like performance
for the selling season.
"If you are a consumer and you walk into a Toys ‘R’ Us and you have a
choice of 7,000 different toys or you go to Wal-Mart where there is a choice
of 1,800 different toys, that’s a massive difference," Jim Silver, toy
analyst at Timetoplaymag.com, told the news service. "I think their SKU
reduction has led to them losing customers."
Research by NPD Group pegged toy stores
as gaining a half-a-point share during the holiday season while mass merchants
lost three percent.
"Whether you look at Target or Wal-Mart, toys are just a little accessory
to bring the customers in," Isaac Larian, CEO of MGA Entertainment, told Reuters. "Toys
are not really their focus. So this is what happens."
Vic Bertrand, chief
innovation officer at Mega Brands, told the news service, "I
don’t think the shelf space at discount (chains) is back to the levels where
it was in the early 2000s or mid 2000s."
While things did not turn out
well for the Bentonville behemoth, Toys ‘R’ Us
put on a full-court press with a large number of exclusive toys and a broader
selection than carried by big box discounters.
"We always look for products that aren’t carried by the limited assortment
mass merchant chains. That’s clearly a major focus," Jerry Storch, CEO
of Toys ‘R’ Us, told Reuters.
"Toys ‘R’ Us grew fantastically. It comes at the expense of somebody
else," Mr.
Larian said.
Discussion Questions
Discussion Questions: Have toy stores as a channel regained the advantage lost over the past couple of decades to mass merchants? What do you expect the mass merchandisers and Toys ’R’ Us to do next holiday season based on the results of 2010?
I don’t know that they have regained the advantage completely, but it certainly appears that toy retailers did well enough this past holiday season. I would be very interested to know how much of it is attributed to the shelf-space issue vs. product exclusives. When I first skimmed the topic of this discussion, my first thought was that Toys “R” Us had pulled off something real with the exclusives that they struck with manufacturers. So I was a little surprised to see the initial focus on shelf space.
The other thing to think about here is what role did online play? Shelf space is infinite online. How much of the industry’s sales came from online vs. in-store this holiday? TRU has put a lot of effort into revamping its site. Walmart.com is still a separate entity, and seemed to have its focus elsewhere for the holidays….
Walmart’s poor showing in the toy category and loss of market share can be, in my opinion, directy related to the lagging affects of John Flemming’s “Project Impact” debacle.
Walmart plans and executes merchandisig strategies a year in advance, and while able to affect assortment changes closer to events, the assortment and shelf space were determined under a different executuve leadership direction.
In addition to the reduction in assortment and shelf space, Walmart also made a critical mistake in placing a large portion of their assortments in the indoor garden section which quite possibly rendered it invisible to many shoppers and I believe impacted their overall sell thru.
I disagree with Isaac Larian’s (CEO of MGA) assertion that toys are not a key focus of mass merchandisers and that they are a “little accessory” to bring customers in. If this were the case Walmart wouldn’t have so aggressively gone after, and achieved, major increases in market share from the mid 1990’s up until a few years ago.
I do believe that we will see a more determined effort by Walmart to return to their previous dominance in Toys and scratch back their losses of the last few years. On the other hand, Toys R Us has done an outstanding job of innovating in the face of this opportunity and it may take a while for Walmart and others to win back this customer completely.
TRU gained share by returning their focus to what they began with–the assortment. They returned to being the “toy expert” as opposed to trying to compete on price with the masters of that game. There’s a lesson here for all retailers struggling to compete with the mass giants–it’s the product, stupid. Give customers a superior alternative in product assortments and you will succeed. Try to compete solely on price and you won’t.
There is no mention of online sales in the article. With parents and grandparents all turning to the Internet (especially being able to have it wrapped and delivered anywhere in the country) I have to believe online toy sales are on the rise. Combine this with the convenience of the “pop up” stores and you have a great weapon against the “blunt mix” of a general merchandise store. It is nice to see that after all the pain, a retailer like Toys can learn to adapt to a new reality.
The next round is probably being fought right now as manufacturers and retailers are negotiating “exclusive offers.” I am sure the Toys buyers are looking for products they can offer that will not be presented at Walmart. They are probably also considering additional customer service that will make their pop ups more exclusive. Meanwhile, Walmart will not make the same mix mistakes this year although it will be interesting to see if that was their entire fault. Could it be that manufacturers are purposely not offering products to Walmart so they can preserve margins?
Meanwhile, I think the continued expansion of online retail bodes well for specialty retailers. As more people shop online, they don’t care whether the retailer carries a large variety of products.
There is an elephant in the room we aren’t looking at. Yes, toy sales in the Mass category were down 2%. Yes, sales at toy stores were up 4%. Online toy sales were up 22%.
As a retailer, toys are a hugely inefficient category. Inventory has to be built and can get out of balance easily, sales are concentrated, price-cuts are common and left overs are more than prevalent. Given a choice between toys, groceries and consumer electronics, there is no choice. Why turn your store upside down to accommodate toys, especially when the consumer is going online?
Walmart and Target are likely the winners here. They didn’t risk margin. They didn’t risk shelf space allocation and come January, they didn’t have to deal with toys.
What upset me about Walmart was that the discounted toys changed from week to week. So in the case of a doll bed I purchased for my daughter, it went from $35 to $15 10 days after I ordered it. And, because their price match policy says that they will match for 7 days after purchase, that I was out of luck. I pushed it and Walmart did the right thing. I think they were hurt by spreading out their discounts from about October on and only showed value hit or miss. They have also reduced their assortment breadth and depth with their remodels. Toys “R” Us can once again be king because their assortment is better than Walmart.
Maybe the future of competition with the mega stores is ownership. Toys “R” Us had exclusive deals on certain products. Many retailers now have extensive private brands. Mega stores have an advantage when an item can be turned into a commodity. For once they do this they compete on price. So what if one can get products the mega cannot or will not carry? Netflix did very well on titles that local video stores could not afford to stock because of low demand.
Is the future in finding niche markets and multi channels of distribution that make these niche markets profitable? If so then how does one get first crack or an exclusive on the niche market? Are we entering a new period of product and service design based on the ability to find or create niche markets?
If sales were not up at TRU, it would be a death knell in the wake of previous losses and the deployment of hundreds of holiday pop-up stores. (What was the ROI on that?) I think Target has done a great job of differentiating its toy offerings through exclusives and going a bit old school/retro with classic and developmental toys while offering at-a-price options to keep traffic flowing. Walmart is not ceding its hard-won toy gains to anyone and a wee uptick from TRU certainly doesn’t prove that Walmart has. I would consider Amazon to be much more of a threat to both at this point since toys are a perfect “endless aisle” category.
Who is going to aggressively take on the convergence between toys and consumer electronics? Now THAT would shake things up.
Gene Detroyer’s remark I think captures the essence of the situation. Toys is a high risk, low return category with unpredictable results. In my experience you can never get enough of the winners (leading to customer angst) and the losers often take major markdown to clear. As far as Walmart is concerned, you need enough presence to keep your core customers happy and to retain a level of credibility–after that you may as well use the space to expand a more predictable category.
Psychology may be working here or maybe it’s a stick-to-itiveness. If I could be the consumer for a moment. Most of the time when I go into Walmart, I feel dirty–not literally so much as figuratively. There’s a sense of cheating to get that (in this case) toy. I agree with others who say the choices may be limited at Walmart. You know when you go to a “toy store,” you feel like you’re where you belong and the variety is better. I’m not necessarily saying Walmart loses and this clash isn’t apples-to-apples but the saying goes “Be like a postage stamp, stick to one thing until you get there.” Possibly Toys “R” Us’ has done that.
I think we need another year to see if this was a one season hiccup, or the beginning of a trend. To Nikki’s point, we may see Walmart re-emphasize toys next Christmas. If that’s the case, then this past year might have been just a hiccup. But if Walmart doesn’t increase assortments or shelf space, then perhaps the story is as Gene suggests, that Walmart sacrificed a few points of share for more than a few points of margin.
It’s important to consider the choices that retailers like TRU make to grow share. These include pop up stores to gain seasonal footprint or additional staff on the floor to improve service and available expertise. The same is true for the e-commerce channel.
What’s also important to watch are the choices manufacturers make to promote one channel over another. These include product investments such as exclusives or special packs as well as dollar investments in the form of up front co-marketing or back-end markdown.
Manufacturers invest in alternatives to mass merchandisers to preserve market leverage, to gain advantage over rival suppliers, and because these alternatives view toys as more than a category to be discounted in the service of traffic. As long as these partners show growth and don’t exploit the situation for short term gain (e.g. pocketing funds, private brand knock offs of key drivers) we will continue to see strong areas for mutual gain.